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A future contract means buying and selling at a specified price(call it agreement price) on specified date between 2 parties in future

so If a stock's spot price is 1000 and future price is 1003,how should i find the agreement price?

  • If it says “1003” on the executed contract, that’s what was agreed upon. Even if the 1003 was some kind of barrier / ceiling price, the actual strike price / agreement price should be in the agreement. After all, the point of the agreement is to transact at the contractually-agreed price. – Lawrence Sep 8 at 10:48
  • @Lawrence I was talking about the futures contracts that are traded in the stock market , so how should i find the agreement price of those contracts as i dont have the actual contract with me – Juzer Hakimji Sep 8 at 11:04
  • The strike price should be one of the parameters specified when you buy it. It affects the price of the option, so it can’t be a hidden thing. – Lawrence Sep 8 at 11:11
  • @Lawrence yes for options strike price is given but for futures it is not given – Juzer Hakimji Sep 8 at 11:36
  • If it isn't provided, how do you determine the price? For FX forward contracts, for example, they take the current FX rate, adjust it for 'forward points' (taking into account the relative difference in interest rates, for example), then tell you the amount of the target currency you'd get for a given primary currency. So the 1003 you mention is the agreed price. – Lawrence Sep 8 at 12:34
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A futures contract trades at many different prices over its lifetime. Each of those prices corresponds to a different "agreement" to buy and sell the underlying. Futures trading requires margin funds (collateral) from both parties to back up the "agreement". Futures are marked to market: If the market moves against your position, you have to put up more money now or face liquidation (margin call). Futures with given terms are fungible: Only net agreements are tracked, so if you buy at 100, the market moves in your favor, and you sell the same quantity at 110, you get your profit in cash now and have no remaining obligation to accept or deliver the underlying.

Thus, while a future can be thought of as an agreement to buy and sell, it doesn't have an inherent strike price like an option. Or rather, the strike price is effectively zero: A future is equivalent to a European call option with zero strike that can be traded with high leverage. See this question.

In your example, if you buy or sell the future at 1003, you are effectively agreeing to buy or sell the underlying at that price (1003) on the expiration date (unless you offset the position before then). I say effectively in that your profit or loss will be as if this is the agreement. But the profit or loss will accumulate in cash day by day (marked to market) rather than all at once at the end.

  • thanks for the reply.so what i understood is that in the beginning a buyer and a seller agrees at a price and then when value of contract increases they sell that contract and that selling price would be future agreement price for the new buyer of contract right? and this goes on – Juzer Hakimji Sep 22 at 9:56

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