Features of Futures Contract

    The features of a futures contract may be specified as follows:

    1. Trading on Organised Exchange: These are traded on an organized exchange like IMM, LIFFE, NSE, BSE, CBOT, etc.

    2. Standardised Contract: These involve standardized contract terms, viz., the underlying asset, the time of maturity, the manner of maturity, etc.

    3. Association with Clearing House: These are associated with a clearing house to ensure the smooth functioning of the market. Future exchanges have clearinghouse arrangements to guarantee the fulfillment of contract obligations.

    4. Margin Requirements and Daily Settlement: There are margin requirements and daily settlements to act as further safeguards. Future positions can be closed easily.

    5. Involvement of Regulatory Authority: These provide for the supervision and monitoring of contracts by a regulatory authority.

    6. Cash Settlement: Almost ninety percent of future contracts are settled via cash settlement instead of actual delivery of the underlying assets.

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