Understand futures contract fundamentals — Hinglish notes

5.1.1 · Stock-Market › Futures

Futures Contract ke Core Components

Standardized kyun? Taaki contracts fungible (interchangeable) aur liquid hon. Tum position exit kar sako opposite side lekar bina apni original counterparty dhundhe.

Economic Logic: Futures Prices Spot Prices se Alag Kyun Hote Hain

Formula Cost-of-Carry Model (No-Arbitrage Condition)

Storable assets ke liye jahan koi convenience yield nahi: $F_{0} = S_{0} \cdot e^{r T}$

Jahan:

$F_{0}$ = aaj ki futures price
$S_{0}$ = spot (current market) price
$r$ = risk-free interest rate (continuously compounded)
$T$ = time to maturity (years mein)

First principles se Derivation:

Strategy A: Asset ko abhi $S_{0}$ par kharido, time $T$ tak hold karo
- Cost: $S_{0}$ upfront
- Opportunity cost: Tum us $S_{0}$ par interest nahi kama sakte → $S_{0} \cdot (e^{r T} - 1)$ lose hota hai
- Storage cost: Financial assets ke liye negligible assume karo
- Time T par Total cost: $S_{0} \cdot e^{r T}$
Strategy B: $F_{0}$ par ek long futures contract enter karo, upfront kuch nahi dena
- Cost at time T: $F_{0}$
No-arbitrage principle: Dono strategies tumhe time $T$ par asset deti hain, isliye unki costs equal honi chahiye: $F_{0} = S_{0} \cdot e^{r T}$

Yeh step kyun? Agar $F_{0} > S_{0} \cdot e^{r T}$ , toh arbitrageurs spot khareedenge, futures bechenge, aur risk-free profit karenge. Market forces $F_{0}$ ko wapas neecha push karti hain. Ulta hoga agar $F_{0}$ bahut low ho.

Long vs. Short Positions

Key asymmetry: Ek long position ka maximum loss limited hota hai — asset sirf zero tak gir sakti hai, isliye long ke liye worst case $F_{0}$ per unit lose karna hai — lekin iska theoretically unlimited upside hota hai kyunki prices bina kisi limit ke badh sakti hain. Ek short position mirror image hai: uska maximum gain capped hai (asset sirf zero tak gir sakti hai) lekin uska loss theoretically unlimited hai kyunki agar asset price badhti rahe, toh short ko phir bhi $F_{0}$ par deliver karna hoga aur ever-higher prices par kharidna padega.

Margin aur Mark-to-Market

Margin call logic ki Derivation:

Tum initial margin deposit karte ho: $M_{0}$
Har din, tumhari position nai futures price par revalue hoti hai
Profit/loss tumhare margin account mein credit/debit hota hai
Agar tumhara margin balance maintenance margin $M_{m}$ se neecha gire, tumhe margin call aati hai
Tumhe additional funds deposit karne padte hain balance ko $M_{0}$ tak wapas laane ke liye, ya tumhari position liquidate ho jaati hai

Contango aur Backwardation

Common Mistakes

Common mistake Mistake 1: "Futures prices future spot prices predict karte hain"

Kyun sahi lagta hai: "Futures" naam forecasting suggest karta hai.

Reality: Futures prices current cost-of-carry reflect karti hain, market expectations nahi. Agar gold futures $2050 p a r haina u r g o l d s p o t$ 2000 par, toh woh $50 premium prediction nahi hai ki gold badhega — yeh interest rate compensation hai.

Jab curves invert hoon: Contango (futures > spot) cost of carry se baseline hai. Backwardation (futures < spot) tab aata hai jab convenience yield cost of carry se zyada ho — physical asset abhi hold karne ka ek real economic benefit, not market sentiment. Storage cost khud cost of carry ka hissa hai, iska deviation nahi.

Fix: Futures ko hedging ya arbitrage ke liye formula ke basis par use karo, crystal ball ki tarah nahi.

Common mistake Mistake 4: "Futures aur forwards ek hi cheez hain"

Kyun sahi lagta hai: Dono ek set price par future mein kharidne/bechne ke agreements hain.

Key differences:

Feature	Futures	Forwards
Exchange traded	Haan	Nahi (OTC)
Standardized	Haan	Customized
Counterparty risk	Clearinghouse eliminate karta hai	Direct exposure
Daily settlement	Haan	Nahi (maturity par settle hota hai)

Fix: Futures liquidity aur transparency ke liye hain; forwards exact customization ke liye hain (jaise, specific date, odd contract size).

Active Recall Checkpoints

Recall Ek 12-saal ke bache ko samjhao

Socho aaj tum ek store mein PlayStation 5 $500 mein dekhte ho, lekin tumhare paas paisa agli month aayega. Tum dar rahe ho price badh jaayegi kyunki sabko chahiye.

Toh tum store manager se deal karte ho: "Main tumhe $500 agli month dunga, chahe us waqt price kuch bhi ho. Mere liye lock kar do." Manager agree karta hai aur paper par likh deta hai.

Woh paper ek futures contract jaisa hai! Tumne price lock kar li. Agar PS5s $600 h o j aa y e in, t u m p hi r bhi s i r f$ 500 doge — tumne $100 j ee t a . L e k ina g a r w o$ 400 ho jaayein, tumhe phir bhi $500 d e na p a d e g a — t u m$ 100 lose karte ho.

Manager ko agli month ki price se koi farak nahi kyunki wo pehle se tumhare $500 par agree kar chuka hai. Yahi key hai: tum dono MUST follow through karo. Real world mein, farmers yeh wheat ke saath karte hain, airlines jet fuel ke saath karti hain, aur investors gold ya stock indexes ke saath karte hain.

Connections

5.1.02-Contango-and-backwardation – Futures curves upar ya neecha kyun slope karti hain
5.1.03-Hedging-with-futures – Prices lock karne ke liye futures use karna
5.1.04-Futures-vs-options – Kharidne/bechne ki obligation vs. right
2.3.01-Time-value-of-money – Pricing mein $e^{r T}$ kyun aata hai
4.2.01-Arbitrage-pricing – No-arbitrage futures ko fair-valued rakhta hai

#flashcards/stock-market

Futures contract kya hai? :: Kisi asset ko ek predetermined price par ek specific future date par kharidne ya bechne ka ek legally binding agreement. Dono parties contract fulfill karne ke liye obligated hain.

Long aur short futures positions mein kya fark hai?

Long = futures price par BUY karne ka agree karna (price badhne par profit). Short = futures price par SELL karne ka agree karna (price girne par profit).

Kaun si futures position mein unlimited loss potential hai, aur kaun si mein bounded loss?

The short mein unlimited loss hai (asset price bina kisi limit ke badh sakti hai). The long mein bounded loss hai — asset sirf zero tak gir sakti hai, isliye max loss per unit

F_{0}

hai.

Futures pricing ka cost-of-carry formula kya hai?

F_{0} = S_{0} \cdot e^{r T}

, jahan

F_{0}

futures price hai,

S_{0}

spot price hai,

r

risk-free rate hai,

T

time to maturity hai. Yeh assume karta hai koi storage costs ya convenience yield nahi.

Futures contracts standardized kyun hote hain?

Standardization unhe fungible (interchangeable) aur liquid banata hai. Tum opposite position lekar exit kar sakte ho bina apni original counterparty dhundhe.

Futures mein mark-to-market kya hai? :: Gains/losses ka daily settlement. Tumhara margin account nai futures price ke basis par har din credit ya debit hota hai, default risk rokne ke liye.

Margin call ke dauran kya hota hai?

Agar tumhara margin balance maintenance margin se neecha gire, tumhe initial margin restore karne ke liye funds deposit karne padte hain, warna tumhari position liquidate ho jaati hai.

Initial margin aur maintenance margin mein kya fark hai?

Initial margin position open karne ke liye upfront deposit hai (contract value ka 5-15%). Maintenance margin position open rakhne ke liye required minimum balance hai (usually initial ka 75-80%).

Kya futures prices future spot prices predict karte hain?

Nahi. Futures prices current cost-of-carry (interest rates, storage costs, convenience yield) reflect karti hain, market forecasts nahi.

Contango kya hai?

Jab futures prices spot price se zyada hoti hain (upar-sloping futures curve). Storable commodities ke liye cost of carry — interest plus storage costs — se drive hota hai.

Commodities mein backwardation kyun hoti hai?

Ek positive convenience yield jo cost of carry se zyada ho, net cost of carry ko negative bana deti hai. Physical asset abhi hold karne ka benefit futures ko spot se neecha push karta hai — market sentiment se nahi.

Long futures position par profit kaise calculate karte hain?

Profit = (Final futures price - Entry futures price) × Contract size. Agar final price > entry price, long profit karta hai; agar final price < entry price, long lose karta hai.

Futures aur forwards mein key difference kya hai?

Futures exchange-traded, standardized hote hain, daily mark-to-market ke saath aur clearinghouse guarantee ke saath. Forwards OTC, customized hote hain, counterparty risk ke saath aur sirf maturity par settlement ke saath.

Convenience yield ke saath full cost-of-carry formula kya hai?

F_{0} = S_{0} \cdot e^{(r + u - y) T}

, jahan

u

= storage cost aur

y

= convenience yield. Jab

y > r + u

, futures spot se neecha girti hain (backwardation).