CA Final SFM Futures Contract Summary Article – Must Read

CA Final SFM Futures Contract Summary Post. Examine Most Current Summery Notes for CA Final SFM Chapter “Future Contracts”. In this post you may find total Summary information for future agreements like– Futures Agreement in Summary, Details for Initial Margin and Maintenance Margin, Information for Mark– to– Market (MTM) and Information for The process of marking-to-market. Now inspect more details from below …

Initial Margin And Maintenance Margin.png

Material in this Article.

CA Final SFM Futures Contract Summary Article

  • a) Future agreement corresponds the forward contract however traded by means of exchange markets which serve as intermediaries.
  • b) The difference is that future agreements are the organized/standardized agreements in regards to amount, quality (in case of products), shipment time and location for settlement on any date in future. That means every aspect of the agreement is repaired ahead of time unlike the forward contract where the two parties decide regards to the contract mutually.
  • c) The contract ends on a pre-specified date which is called the expiry date of the agreement.
  • d) On expiry, futures can be settled by shipment of the underlying property or money. However frequently settled in money just.
  • e) When the financier wishes to settle the agreement before expiration, he simply has to offer (if purchased earlier) the very same contract to somebody else or purchase (if sold earlier) the very same agreement to another person on the fundamental futures price.
  • f) The long and brief celebration typically do not deal with each other directly or perhaps understand each other for that matter. The exchange functions as a clearinghouse. As far as the two sides are worried they are participating in contracts with the exchange. The exchange assurances performance of the contract regardless of whether the other party stops working.
  • g) When you actually sell the stock exchange you buy or offer the stock under consideration. Say you buy 10% equity shares of Reliance and become the shareholder or owner of Dependence to that extent. You in fact own these shares.
  • h) But in futures trading you do not actually buy anything or own anything. You are simply hypothesizing on the future direction of the price in the security you are trading. It’s a bet that you are placing on future cost instructions.
  • i) The terms that “you purchase futures” or “you offer futures” just indicate your expectation of direction in which the future costs will move.

Initial Margin and Maintenance Margin

  • Individuals in a futures agreement are needed to publish efficiency margins in order to open and preserve a futures position. [Just like we pay rent deposit before we step into the rented house]
  • Futures margin requirements are set by the exchanges determined under PERIOD System used by significant exchanges all over the world (Basic Portfolio Analysis of Risk).
  • Margins are financial guarantees required of both buyers and sellers of futures contracts to ensure that they satisfy their futures contract responsibilities.
  • The upkeep margin is the minimum amount a futures trader is required to preserve in his margin account in order to hold a futures position. The upkeep margin level is typically somewhat listed below the preliminary margin.
  • If the balance in the futures trader’s margin account falls below the maintenance margin level, she or he will get a margin call to top up his margin account so regarding satisfy the preliminary margin requirement.
Initial Margin and Maintenance Margin

Mark– to– Market

Mark-to-market (MTM) is a method of valuing positions and identifying earnings and loss Just, In India SEBI has actually defined that purchaser and seller of the futures agreement has to transfer the Preliminary Margin with the broker at the time of participating in agreement. From there onwards till the expiry date the futures agreement will be marked to market every day.

The process of marking-to-market

  • Futures are marked-to-market every day, so the existing cost is compared to the previous day’s cost.
  • While the margin accounts of each celebration get adjusted at the end of every day, on the very same time the old future contract gets replaced with the new one at the new rate.
  • Hence each future agreement is rolled over to the next day at brand-new price.

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CA Mayank Kothari

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