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Finance GlossaryFutures Contract
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Futures Contract

Definition of Futures Contract

A futures contract is a derivative instrument that is legal agreement between two parties for the mandatory purchase or sale of an underlying asset at a pre-agreed price and date.

Every futures contract contains a standard lot size on top of the agreed price and date as they are a standardized derivative traded on a stock exchange, most commonly on NSE and BSE.

The price of a futures contract is known to vary from the spot price of the same underlying asset due to factors like the cost of carry, interest rates, and more.

Related Terms

Equity

Equity is generally defined as a stake or per share ownership in a company. That's why stocks are often called equity or equities. In the broader markets, equity is also used to refer to the total amount of money shareholders stand to get in case a company is liquidated.

Best Efforts Underwriting/Offering

A best efforts underwriting or offering means the underwriter will do their best to market the securities for the issuer (company, supplier, etc) to investors. The underwriter will not buy all the securities from the issuer, only those the underwriter’s clients want to purchase.

Average Daily Trading Volume

The Average Daily Trading Volume (ADTV) is a technical indicator that indicates the number of shares that were bought and sold on average across one or more trading days.

A high ADTV means that more investors are interested in a stock while a low ADTV implies that a stock isn’t on the radar of many investors. The formula for Average Daily Trading Volume (ADTV) is:

ADTV x days = Total trading volume of stock across x days / x days

EBITDA

EBITDA is short for Earnings Before Interest, Taxes, Depreciation, and Amortization. EBITDA allows investors to understand cash flow from all operations while excluding certain non-cash expenses related to interest, depreciation, amortization, and taxes.

That’s why investors use EBITDA as a valuation technique to determine the profitability of a company. Interestingly, EBITDA is a variation of operating income which is known as EBIT.

While there are many ways to calculate EBITDA, the most common methods include:

1) EBITDA = Net Income + Taxes + Interest + Depreciation + Amortization 2) EBITDA = Operating Income + Depreciation & Amortization

Diversification

Diversification is the act of investing in more than one asset class, sector, industry, or country to mitigate risk. It is an investment strategy designed to reduce risk by pairing a volatile asset class like equities with a fixed income asset class like fixed deposits. Or, by investing in equities in one country and complementing it by investing a portfolio in stocks from another country.

India VIX

India VIX is an index that measures volatility and market sentiment. The term VIX stands for Volatility Index and thus, the full form of India VIX is Indian Volatility Index.

A higher India VIX means higher volatility whereas India VIX would be lower due periods of low volatility. In fact, there are absolute values that help understand volatility via India VIX.

India VIX typically moves between 15 to 30, which represents a range that is considered “normal” as far as volatility is concerned.

However, India VIX has touched 90 during the 2008 financial crisis and trended near the value once again when the pandemic broke out in 2020.



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