Types of Financial future contracts

Types of Financial future contracts 

Financial futures contracts are contracts on fixed income securities, equity indexes, and currencies.  Are as flows:-

Stock Index Futures-Stock index future is the first type of financial future contacts that indicate the promise to sell or buy the standardize units of certain index price at a particular future date. At the expiration of the contract, there is no actual delivery mechanism.

Foreign Currency Futures-One of the important ways of financial futures contracts “Foreign Currency Futures”. At the International Monetary Market of the Chicago Mercantile Exchange, foreign currency futures contracts are traded. 

Hedging with Stock Index Futures-Financial future contracts are hedged by the common stock investors for a similar reasons that fixed-income investors utilize them. Substantial stock portfolio is held by the individual or institutional investors that includes the risk of the entire market.

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Interest Rate FuturesInvestors are exposed to severe price movements because bond prices are highly volatile. The risk of volatile interest rates faced by the bondholders is transferred through financial futures.

Short Hedges-For most investors short hedge is the natural kind of contract as too much common stock is held by investors. Stock index futures are sold for hedging purposes by investors who hold stock portfolios. This indicates that these investors assume a short position.

Long Hedges When price increase the long hedger normally desires to reduce the risk of having to pay more for an equity position. Following are the main users of the long hedge

• Companies that have regular cash flows use a long hedge to better the timing of their positions.
• Companies exchanging large positions which desire to hedge during the time it takes to finish the process.