Home       Top Rated       Submit Article     Advanced Search     FAQ       Contact Us       Lawyers in India       Law Forum     RSS Feeds     

Register your Copyright Online

We offer copyright registration right from your desktop click here for details.

Latest Articles | Articles 2014 | Articles 2013 | Articles 2012 | Articles 2011 | Articles 2010 | Articles 2009 | Articles 2008 | Articles 2007 | Articles 2006 | Articles 2000-05

Search On:Laws in IndiaLawyers Search

Mutual Consent Divorce in Delhi
We provide fast, cost effective and Hassle free solution.
Contact us at Ph no: 9650499965 (Divorce Law Firm Delhi)

E-mail login                       Password

Free Email Sign Up

Main Categories
 Accident Law
 Aviation Law
 Banking and Finance laws
 Case Laws
 Civil Laws
 Company Law
 Constitutional Law
 Consumer laws
 Contracts laws
 Criminal law
 Drug laws
 Dubai laws
 Educational laws
 Employment / Labour laws
 Environmental Law
 family law
 Gay laws and Third Gender
 Human Rights laws
 Immigration laws
 Insurance / Accident Claim
 Intellectual Property
 International Law
 Juvenile Laws
 Law - lawyers & legal Profession
 Legal Aid and Lok Adalat
 Legal outsourcing
 Media laws
 Medico legal
 Real estate laws
 Right To Information
 Tax Laws
 Torts Law
 Woman Issues
 Workplace Equality & Non-Discrimination
 Yet Another Category

More Options
 Most read articles
 Most rated articles

Subscribe now and receive free articles and updates instantly.


Copyright Registration

To Copyright Your Books, Videos, Songs, Scripts etc
Call us at: 9891244487 / or email at: admin@legalserviceindia.com
Top Law Colleges

Law Updates:

# Income-Tax
# Family law
# Company Law
# Constitutional Law
# Partnership firms
# Immigration Law
# Cyber Law
# Lok Adalat, legal Aid & PIL
# Forms
# Trademarks
# Woman issues
# Medico Legal
# Consumer laws
# Criminal laws
# Supreme Court Judgments

Published : June 20, 2016 | Author : grishma
Category : Banking and Finance laws | Total Views : 464 | Unrated

Law student, ILS Law, Pune

Futures and forward derivatives - General Overview

A Derivative is a security deriving its price from underlying assets viz. Stocks, currencies, bonds etc. The value of the underlying asset depends upon the fluctuations of the price of such an asset in the market. As per Section 2(ac) of the Securities Contract (Regulation) Act, 1956 Derivative is defined as:

“Derivatives includes-(A) a security derived from a debt instrument, share, loan, whether secured or unsecured, risk instrument or contract for differences or any other form of security; (B) a contract which derives its value from the prices, or index of prices, of underlying securities”

There are various kinds of derivatives in the market. They are forward, future, option, swaps etc. the object of this article is to examine the features of futures and forwards contracts in detail.

Originally the working of both the contracts are similar in nature. It is important to analyse the working of these types of contracts for risk allocation as well as the valuation technique..

Forward Contract

A forward contract means a contract between parties to buy or sell something on a certain date on a price fixed on the date of the agreement.
Generally speaking a forward contract involves more risk than a futures contract. Forward contracts are entirely customised between private parties. Essentially both contracts have same function. Forward contract is settled at a forward price determined at the start trading date. In a forward contract there is no cash flow until delivery.
A forward contract, in case of physical delivery specifies to whom the delivery should be made to. Forward contracts are usually unregulated.

Futures Contract

In simple terms, a futures contract is an agreement between two parties to buy or sell on a future date.
Futures contracts are generally standardised contracts. They take place in an organised exchange. Futures contracts automatically require credit risk mitigation measures. This kind of contract employs a system where profits and losses are exchanged on the day they occur. Due to these payments, a futures contract has market value at zero at the end of the trading day. This removes credit risk to a great extent.
Futures contract are settled at the settlement price determined at the last trading date. Buyers benefit from price increase whereas sellers benefit from price decrease.

As such fundamentally the function of both the contracts are similar. The important aspect that is lower credit risk exists in futures rather than in forward contracts. Since futures contracts are regulated and standardised there is lower risk of a party defaulting as against an unregulated forward contract. Futures contracts have clearing houses who regulates the parties and probability of default is considerably lower. Moreover, as futures contracts are daily market to market transactions which means exchanges occur at the end of each trading day making it more viable than a forward contract which has only one settlement date.

On the other hand because futures contracts are often employed by persons, who follow the direction in which a price of an asset will move and go ahead, they are generally shut out prior to maturity and delivery usually never happens as against forward contracts that want to eliminate the uncertainity of a the price of the asset and delivery of the asset or seek settlement usually takes place.

1 2 3 4 5
Rate this article!     Poor

Most viewed articles in Banking and Finance laws category
Amendment of 2013 of The Securitization And Reconstruction of Financial Assets And Enforcement Of Security Interest Act, 2002
The Reserve Bank of India and its functions
Protection of the interest of the investor
Applying the Usurious Loans Act of India
Reduction Of Capital, Does It Reduce Only Capital Or Even Minorities?
Legally Enforceable Debt u/s. 138 of the Negotiable Instruments Act, 1881
Intellectual Property
Indian Foreign Direct Investment Policy
Money Laundering
Role of NGO in the WTO system
Working of Capital Market in India
Regionalism & Regional Trade Regulation
socio economic survey of the Project Affected Families of Kakinada SEZ Private Limited
Latest Financial Statement
Recovery of Debts in Ancient India
Private Equity Investments - A Brief Overview
Most recent articles in Banking and Finance laws category
A case against system markets-automobile industry of India
Bank and Borrower a Relationship of Trust and Understanding
Futures and forward contracts
Debt Recovery Tribunal
Prohibition of Insider Trading Regulations, 2015
Working of Capital Market in India
Analysis of regulations governing IFSCs in India
Banking Frauds in India
The Reserve Bank of India and its functions
Private Equity Investments - A Brief Overview
Legally Enforceable Debt u/s. 138 of the Negotiable Instruments Act, 1881
Protection of the interest of the investor
Amendment of 2013 of The Securitization And Reconstruction of Financial Assets And Enforcement Of Security Interest Act, 2002
Intellectual Property
Regionalism & Regional Trade Regulation
socio economic survey of the Project Affected Families of Kakinada SEZ Private Limited

Article Comments

there are no comments...

Post Your Comments


Your comments

Note : Your email address is only visible to admin, other members / users cannot see it.

You can use following FXCodes

BOLD : [b]
Italic : [i]

[b] Legal Services India [/b] is a [i]nice website[/i].
[url= http://www.legalservicesindia.com/article/ ]click here to visit.[/url]

Legal Services India is a nice website.
Click here to visit


Note : Currently, user comments are moderated and will be posted only after approval.

Please login or register a new free account.

Random Pick
Virtually any useful information can qualify as a trade secret. It need not rise to the dignity of an invention; a discovery is enough, even if it is only a relatively minor improvement on a process already known to the trade. And the law...

» Total Articles
» Total Authors
» Total Views
» Total categories

Law Forum

Legal Articles

Lawyers in India- Click on a link below for legal Services

lawyers in Chennai
lawyers in Bangalore
lawyers in Hyderabad
lawyers in Cochin
lawyers in Pondicherry
lawyers in Guwahati
lawyers in Nashik

lawyers in Jaipur
lawyers in New Delhi
lawyers in Dimapur
lawyers in Agra
Noida lawyers
lawyers in Siliguri

For Mutual consent Divorce in Delhi

Ph no: 9650499965
For online Copyright Registration

Ph no: 9891244487
Law Articles

lawyers in Delhi
lawyers in Chandigarh
lawyers in Allahabad
lawyers in Lucknow
lawyers in Jodhpur
Faridabad lawyers

lawyers in Mumbai
lawyers in Pune
lawyers in Nagpur
lawyers in Ahmedabad
lawyers in Surat
Ghaziabad lawyers

lawyers in Kolkata
lawyers in Janjgir
lawyers in Rajkot
lawyers in Indore
lawyers in Ludhiana
Gurgaon lawyers


India's Most Trusted Online law library
Legal Services India is Copyrighted under the Registrar of Copyright Act ( Govt of India) 2000-2016
 ISBN No: 978-81-928510-1-3