BUS 316 Lecture Notes - Futures Exchange, Titanium Metals Corporation, Arbitrage
Document Summary
In a forward contract, one party agrees to buy, and the counterparty to sell, a physical asset or a security at a speci c price on a speci c date in the future. A futures contract is a forward contract that is standardized and exchange-traded. 2 both are priced to have zero value on the contract initiation date no cash transaction when signing a contract. Di erences: futures are traded on organized exchanges (more liquid secondary market); forwards are traded on otc markets futures are highly standardized and regulated; forwards are private and customized contracts. 3 a single clearinghouse is the counterparty to all futures contracts; forwards are contracts between individuals futures require margin deposits and are marked to market daily. The seasonality of the agricultural products causes big prices uctuation in the spot market. (too much grain at one time and too little at another) Futures contracts are created to let farmers to sell their grain before delivering it.