Stock futures trading means trading of shares based on the futures contract.It liquidates on predetermined date and time.
What are stock futures
Futures stocks are contracts where an asset is referred as the individual stock.Its price is predetermined.Stock futures are usually a contact between buyer and seller of specified shares on pre-determined future date and time at a specific price decided by buyer and seller.
It is based on contracts and each and everything clear in the contract like expiry date, price, quantity and other important details.
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How futures stock is priced -
The amount of a futures contract is a sum of the cutting-edge spot charge and price of convey. However, the real charge of futures contract relies upon the demand and supply of the underlying inventory. Normally, the futures charges are higher than the spot charges of the underlying shares.
The formula for determination of stock futures is following:
Futures price = spot price + cost of carrying
The cost of carrying is the interest cost of shares in the market and carried to maturity of the futures contract less any dividend predicted till the expiry of the contract.
The difference between Stock futures and stock options:
They both are the type of agreement which has a pre-decided deadline for buying and selling of underlying assets.Both come in equity and both gives better opportunity to make an investment and gain valuable profit.
If someone purchases stock options, his financial liability is to pay the premium cost of assets at the time of purchasing while in the futures contract both buyer and seller have liability than options means if the price of the stock goes against then they are liable to manage their trading account.They have to manage their capital.
The stock option provides flexibility to the investor to buy and sell particular underlying assets while future stocks do not provide flexibility to investors.
In stock futures, the buyer of assets is responsible for buying particular stock from the seller of that contract on the expiry date of the contract while in stock options, a person who purchases call has right to buy and sell stock at a specific price.
How one can start stock futures trading:
First, you require to register yourself as a client by fulfilling necessary forms and details then you have to sign on the agreement of client form and give it to your broker and after all formalities, you can start trading.
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