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Futures - SGX SIP Online Education Module

Derivatives

A derivative is a type of financial contract whose value is derived from other underlying assets like

Common types of derivates includes futures, options, forwards and warrants. Derivates can be used for speculative or hedging purposes.

Most derivatives are leveraged products, you get a larger exposure in the underlying asset for a relatively small cost. Leverage works in both ways; while gains are multiplied, the potential loss is also magnified.

What are Futures?

Futures contracts give investors the obligation to buy or sell the underlying asset in a specified quantity at a specified price (the future price or delivery price), on a specified future date (the delivery date or settlement date).

Futures are subject to margin requirements and have partial settlements of emerging gains/losses through daily mark-to-market processes.

How do they work?

Types of Futures

Margins

Mark-to-Market

Settlement Methods

Futures contracts can be settled in two ways:

Key Features of Exchange Traded Futures

Key differences between options and futures