A security is a tradable financial asset. The term commonly refers to any form of instrument. In some jurisdictions the term specifically excludes financial instruments other than equities, in some jurisdictions it includes some instruments that are close to equities and fixed income, e. g. equity warrants. In the United States, a security is a financial asset of any kind. Securities are broadly categorized into, debt securities equity securities derivatives, the company or other entity issuing the security is called the issuer. A countrys regulatory structure determines what qualifies as a security, for example, private investment pools may have some features of securities, but they may not be registered or regulated as such if they meet various restrictions. Securities may be represented by a certificate or, more typically, non-certificated, region or country Market capitalization State Securities are the traditional way that commercial enterprises raise new capital. These may be an alternative to bank loans depending on their pricing.
Another disadvantage of bank loans as a source of financing is that the bank may seek a measure of protection against default by the borrower via extensive financial covenants, through securities, capital is provided by investors who purchase the securities upon their initial issuance. In a similar way, a government may issue securities too when it needs to increase government debt, investors in securities may be retail, i. e. members of the public investing other than by way of business. The greatest part of investment, in terms of volume, is wholesale, i. e. by financial institutions acting on their own account, important institutional investors include investment banks, insurance companies, pension funds and other managed funds. The traditional economic function of the purchase of securities is investment, debt securities generally offer a higher rate of interest than bank deposits, and equities may offer the prospect of capital growth. Equity investment may control of the business of the issuer.
Debt holdings may offer some measure of control to the if the company is a fledgling start-up or an old giant undergoing restructuring. In these cases, if interest payments are missed, the creditors may take control of the company, the last decade has seen an enormous growth in the use of securities as collateral. Purchasing securities with borrowed money secured by other securities or cash itself is called buying on margin, where A is owed a debt or other obligation by B, A may require B to deliver property rights in securities to A, either at inception or only in default. Collateral arrangements are divided into two categories, namely security interests and outright collateral transfers. Commonly, commercial banks, investment banks, government agencies and other investors such as mutual funds are significant collateral takers as well as providers
National Stock Exchange of India
The National Stock Exchange of India Limited is the leading stock exchange of India, located in Mumbai. NSE was established in 1992 as the first demutualized electronic exchange in the country. National Stock Exchange has a market capitalization of more than US$1.41 trillion. NSEs flagship index, the NIFTY50, the 51 stock index, is used extensively by investors in India, only about 4% of the Indian economy / GDP is actually derived from the stock exchanges in India. NSE was set up by a group of leading Indian financial institutions at the behest of the government of India to bring transparency to the Indian capital market. Based on the laid out by the government committee, NSE has been established with a diversified shareholding comprising domestic. The key domestic investors include Life Insurance Corporation of India, State Bank of India, IFCI Limited IDFC Limited and Stock Holding Corporation of India Limited. And the key global investors are Gagil FDI Limited, GS Strategic Investments Limited, SAIF II SE Investments Mauritius Limited, Aranda Investments Pte Limited, NSE offers trading and settlement services in equity, equity derivatives and currency derivatives segments.
It is the first exchange in India to introduce electronic trading facility thus connecting together the investor base of the entire country, NSE has 2500 VSATs and 3000 leased lines spread over more than 2000 cities across India. NSE commenced operations in the Wholesale Debt Market segment in June 1994, the capital market segment of the NSE commenced operations in November 1994, while operations in the derivatives segment commenced in June 2000. Of these only 7,800 companies are listed of which only 4000 trade on the stock exchanges at BSE and NSE. Hence the stocks trading at the BSE and NSE account for only around 4% of the Indian economy, NSE was mainly set up to bring in transparency in the markets. Instead of trading membership being confined to a group of brokers, NSE ensured that anyone who was qualified, experienced, in this context, NSE was ahead of its times when it separated ownership and management in the exchange under SEBIs supervision. The price information which could earlier be accessed only by a handful of people could now be seen by a client in a location with the same ease.
The paper-based settlement was replaced by electronic depository-based accounts and settlement of trades was always done on time, one of the most critical changes was that a robust risk management system was set in place, so that settlement guarantees could protect investors against broker defaults. NSE was instrumental in creating the National Securities Depository Limited which allows investors to hold and transfer their shares. It allows investors to hold and trade in as few as one share or bond, the futures and options segment of NSE has made a global mark. In the Futures and Options segment, trading in NIFTY50 Index, NIFTY IT index, NIFTY Bank Index, NIFTY Next 50 index, trading in Mini Nifty Futures & Options and Long term Options on NIFTY50 are available. The average daily turnover in the F&O Segment of the Exchange during the financial year April 2013 to March 2014 stood at ₹1.52236 trillion
Shenzhen Stock Exchange
The Shenzhen Stock Exchange is one of Chinas three stock exchanges, alongside the Shanghai Stock Exchange and Hong Kong Stock Exchange. It is based in the Futian district of Shenzhen, with a market capitalization of its listed companies around US$2.285 trillion in 2015, it is the 8th largest stock exchange in the world, and 4th largest in East Asia and Asia. Many of the companies within this market are subsidiaries of companies in which the Chinese government maintains controlling interest, the exchange opened the ChiNext board, a NASDAQ-type exchange for high-growth, high-tech start-ups, on October 23,2009. Listed companies,1700 Market capitalization, RMB3521745,3 million The Shenzhen Stock Exchange building is a skyscraper with a height of 245.8 metres and 49 floors. Its construction started in 2008 and was finished in 2013. The building was designed by Rem Koolhaass firm, the building is located at 2012 Shennan Blvd
Shanghai is the most populous city proper in the world, with a population of more than 24 million as of 2014. As one of the four direct-controlled municipalities of the Peoples Republic of China, it is a financial centre and transport hub. Located in the Yangtze River Delta in East China, Shanghai sits on the edge of the mouth of the Yangtze in the middle portion of the eastern Chinese coast. The municipality borders the provinces of Jiangsu and Zhejiang to the north and west, as a major administrative and trading city, Shanghai grew in importance in the 19th century due to trade and recognition of its favourable port location and economic potential. The city was one of five treaty ports forced open to foreign trade following the British victory over China in the First Opium War, the subsequent 1842 Treaty of Nanking and 1844 Treaty of Whampoa allowed the establishment of the Shanghai International Settlement and the French Concession. The city flourished as a center of commerce between China and other parts of the world, and became the financial hub of the Asia-Pacific region in the 1930s.
However, with the Communist Party takeover of the mainland in 1949, trade was limited to other socialist countries, and the citys global influence declined. In the 1990s, the reforms introduced by Deng Xiaoping resulted in an intense re-development of the city, aiding the return of finance. The two Chinese characters in the name are 上 and 海, together meaning Upon-the-Sea. The earliest occurrence of this dates from the 11th-century Song Dynasty, at which time there was already a river confluence. There are disputes as to exactly how the name should be understood, Shanghai is officially abbreviated 沪 in Chinese, a contraction of 沪渎, a 4th- or 5th-century Jin name for the mouth of Suzhou Creek when it was the main conduit into the ocean. This character appears on all motor vehicle license plates issued in the municipality today, another alternative name for Shanghai is Shēn or Shēnchéng, from Lord Chunshen, a third-century BC nobleman and prime minister of the state of Chu, whose fief included modern Shanghai.
Sports teams and newspapers in Shanghai often use Shen in their names, such as Shanghai Shenhua F. C. Huating was another early name for Shanghai. In AD751, during the dynasty, Huating County was established at modern-day Songjiang. Today, Huating appears as the name of a hotel in the city. The city has various nicknames in English, including Pearl of the Orient, during the Spring and Autumn period, the Shanghai area belonged to the Kingdom of Wu, which was conquered by the Kingdom of Yue, which in turn was conquered by the Kingdom of Chu. During the Warring States period, Shanghai was part of the fief of Lord Chunshen of Chu and he ordered the excavation of the Huangpu River. Its former or poetic name, the Chunshen River, gave Shanghai its nickname of Shen, two important events helped promote Shanghais development in the Ming dynasty
Shanghai Stock Exchange
The Shanghai Stock Exchange, is a stock exchange that is based in the city of Shanghai, China. It is one of the two stock exchanges operating independently in the Peoples Republic of China, the other being the Shenzhen Stock Exchange. Shanghai Stock Exchange is the worlds 5th largest stock market by market capitalization at US$3.5 trillion as of February 2016, the current exchange was re-established on November 26,1990 after a 41-year hiatus and was in operation on December 19 of the same year. It is a non-profit organization directly administered by the China Securities Regulatory Commission, the formation of the International Settlement in Shanghai was the result of the Treaty of Nanking of 1842 and subsequent agreements between the Chinese and foreign governments. The Shanghai International Settlement was crucial to the development of trade in China. The market for trading in Shanghai began in the late 1860s. The first shares registrar appeared in June 1866, in 1891 during the boom in mining shares, foreign businessmen founded the Shanghai Sharebrokers Association headquartered in Shanghai as Chinas first stock exchange.
In 1904 the Association applied for registration in Hong Kong under the provision of the Companies ordinance and was renamed as the Shanghai Stock Exchange, the supply of securities came primarily from local companies. In the early days, banks dominated private shares but, by 1880, only the Hong Kong, in 1920 and 1921, Shanghai Securities & Commodities Exchange and Shanghai Chinese Merchant Exchange started operation respectively. An amalgamation eventually took place in 1929, and the combined markets operated thereafter as the Shanghai Stock Exchange, rubber plantations became the staple of stock trading beginning in the second decade of the 20th century. By the 1930s, Shanghai had emerged as the center of the Far East. The operation of Shanghai Stock Exchange came to a halt after Japanese troops occupied the Shanghai International Settlement on December 8,1941. In 1946, Shanghai Stock Exchange resumed its operations before closing again 3 years in 1949, after the Cultural Revolution ended and Deng Xiaoping rose to power, China was re-opened to the outside world in 1978.
During the 1980s, Chinas securities market evolved in tandem with the economic reform and opening up. On 26 November 1990, Shanghai Stock Exchange was re-established and operations began a few weeks on 19 December,1866 - The first share list appeared in June. 1871 - Speculative bubble burst triggered by monetary panic,1883 - Credit crisis resulted speculation in Chinese companies. 1890 - Bank crisis started from Hong Kong,1891 - Shanghai Sharebrokers Association established. 1895 - Treaty of Shimonoseki opened Chinese market to foreign investors,1904 - Renamed to Shanghai Stock Exchange
London /ˈlʌndən/ is the capital and most populous city of England and the United Kingdom. Standing on the River Thames in the south east of the island of Great Britain and it was founded by the Romans, who named it Londinium. Londons ancient core, the City of London, largely retains its 1. 12-square-mile medieval boundaries. London is a global city in the arts, education, fashion, healthcare, professional services and development, tourism. It is crowned as the worlds largest financial centre and has the fifth- or sixth-largest metropolitan area GDP in the world, London is a world cultural capital. It is the worlds most-visited city as measured by international arrivals and has the worlds largest city airport system measured by passenger traffic, London is the worlds leading investment destination, hosting more international retailers and ultra high-net-worth individuals than any other city. Londons universities form the largest concentration of education institutes in Europe. In 2012, London became the first city to have hosted the modern Summer Olympic Games three times, London has a diverse range of people and cultures, and more than 300 languages are spoken in the region.
Its estimated mid-2015 municipal population was 8,673,713, the largest of any city in the European Union, Londons urban area is the second most populous in the EU, after Paris, with 9,787,426 inhabitants at the 2011 census. The citys metropolitan area is the most populous in the EU with 13,879,757 inhabitants, the city-region therefore has a similar land area and population to that of the New York metropolitan area. London was the worlds most populous city from around 1831 to 1925, Other famous landmarks include Buckingham Palace, the London Eye, Piccadilly Circus, St Pauls Cathedral, Tower Bridge, Trafalgar Square, and The Shard. The London Underground is the oldest underground railway network in the world, the etymology of London is uncertain. It is an ancient name, found in sources from the 2nd century and it is recorded c.121 as Londinium, which points to Romano-British origin, and hand-written Roman tablets recovered in the city originating from AD 65/70-80 include the word Londinio. The earliest attempted explanation, now disregarded, is attributed to Geoffrey of Monmouth in Historia Regum Britanniae and this had it that the name originated from a supposed King Lud, who had allegedly taken over the city and named it Kaerlud.
From 1898, it was accepted that the name was of Celtic origin and meant place belonging to a man called *Londinos. The ultimate difficulty lies in reconciling the Latin form Londinium with the modern Welsh Llundain, which should demand a form *lōndinion, from earlier *loundiniom. The possibility cannot be ruled out that the Welsh name was borrowed back in from English at a date, and thus cannot be used as a basis from which to reconstruct the original name. Until 1889, the name London officially applied only to the City of London, two recent discoveries indicate probable very early settlements near the Thames in the London area
New York Stock Exchange
The New York Stock Exchange, is an American stock exchange located at 11 Wall Street, Lower Manhattan, New York City, New York. It is by far the worlds largest stock exchange by market capitalization of its companies at US$19.3 trillion as of June 2016. The average daily trading value was approximately US$169 billion in 2013, the NYSE trading floor is located at 11 Wall Street and is composed of 21 rooms used for the facilitation of trading. A fifth trading room, located at 30 Broad Street, was closed in February 2007, the main building and the 11 Wall Street building were designated National Historic Landmarks in 1978. The NYSE is owned by Intercontinental Exchange, an American holding company that it lists, previously, it was part of NYSE Euronext, which was formed by the NYSEs 2007 merger with Euronext. NYSE and Euronext now operate as divisions of Intercontinental Exchange, the NYSE has been the subject of several lawsuits regarding fraud or breach of duty and in 2004 was sued by its former CEO for breach of contract and defamation.
The earliest recorded organization of securities trading in New York among brokers directly dealing with each other can be traced to the Buttonwood Agreement, previously securities exchange had been intermediated by the auctioneers who conducted more mundane auctions of commodities such as wheat and tobacco. In 1817 the stockbrokers of New York operating under the Buttonwood Agreement instituted new reforms, after sending a delegation to Philadelphia to observe the organization of their board of brokers, restrictions on manipulative trading were adopted as well as formal organs of governance. Several locations were used between 1817 and 1865, when the present location was adopted, the invention of the electrical telegraph consolidated markets, and New Yorks market rose to dominance over Philadelphia after weathering some market panics better than other alternatives. The Civil War greatly stimulated speculative securities trading in New York, by 1869 membership had to be capped, and has been sporadically increased since.
The latter half of the century saw rapid growth in securities trading. Securities trade in the nineteenth and early twentieth centuries was prone to panics. The Stock Exchange Luncheon Club was situated on the floor from 1898 until its closure in 2006. The main building, located at 18 Broad Street, between the corners of Wall Street and Exchange Place, was designated a National Historic Landmark in 1978, as was the 11 Wall Street building. The NYSE announced its plans to merge with Archipelago on April 21,2005, NYSEs governing board voted to merge with rival Archipelago on December 6,2005, and became a for-profit, public company. It began trading under the name NYSE Group on March 8,2006, Wall Street is the leading US money center for international financial activities and the foremost US location for the conduct of wholesale financial services. It comprises a matrix of wholesale financial sectors, financial markets, financial institutions, the principal sectors are securities industry, commercial banking, asset management, and insurance.
Prior to the acquisition of NYSE Euronext by the ICE in 2013, Marsh Carter was the Chairman of the NYSE, the chairman is Jeffrey Sprecher
Paris is the capital and most populous city of France. It has an area of 105 square kilometres and a population of 2,229,621 in 2013 within its administrative limits, the agglomeration has grown well beyond the citys administrative limits. By the 17th century, Paris was one of Europes major centres of finance, fashion and the arts, and it retains that position still today. The aire urbaine de Paris, a measure of area, spans most of the Île-de-France region and has a population of 12,405,426. It is therefore the second largest metropolitan area in the European Union after London, the Metropole of Grand Paris was created in 2016, combining the commune and its nearest suburbs into a single area for economic and environmental co-operation. Grand Paris covers 814 square kilometres and has a population of 7 million persons, the Paris Region had a GDP of €624 billion in 2012, accounting for 30.0 percent of the GDP of France and ranking it as one of the wealthiest regions in Europe. The city is a rail and air-transport hub served by two international airports, Paris-Charles de Gaulle and Paris-Orly.
Opened in 1900, the subway system, the Paris Métro. It is the second busiest metro system in Europe after Moscow Metro, Paris Gare du Nord is the busiest railway station in the world outside of Japan, with 262 millions passengers in 2015. In 2015, Paris received 22.2 million visitors, making it one of the top tourist destinations. The association football club Paris Saint-Germain and the rugby union club Stade Français are based in Paris, the 80, 000-seat Stade de France, built for the 1998 FIFA World Cup, is located just north of Paris in the neighbouring commune of Saint-Denis. Paris hosts the annual French Open Grand Slam tennis tournament on the red clay of Roland Garros, Paris hosted the 1900 and 1924 Summer Olympics and is bidding to host the 2024 Summer Olympics. The name Paris is derived from its inhabitants, the Celtic Parisii tribe. Thus, though written the same, the name is not related to the Paris of Greek mythology. In the 1860s, the boulevards and streets of Paris were illuminated by 56,000 gas lamps, since the late 19th century, Paris has been known as Panam in French slang.
Inhabitants are known in English as Parisians and in French as Parisiens and they are pejoratively called Parigots. The Parisii, a sub-tribe of the Celtic Senones, inhabited the Paris area from around the middle of the 3rd century BC. One of the areas major north-south trade routes crossed the Seine on the île de la Cité, this place of land and water trade routes gradually became a town
Lisbon is the capital and the largest city of Portugal, with a population of 552,700 within its administrative limits in an area of 100.05 km². Its urban area extends beyond the administrative limits with a population of around 2.7 million people. About 2.8 million people live in the Lisbon Metropolitan Area and it is continental Europes westernmost capital city and the only one along the Atlantic coast. Lisbon lies in the western Iberian Peninsula on the Atlantic Ocean, the westernmost areas of its metro area is the westernmost point of Continental Europe. Lisbon is recognised as a city because of its importance in finance, media, arts, international trade, education. It is one of the economic centres on the continent, with a growing financial sector. Humberto Delgado Airport serves over 20 million passengers annually, as of 2015, and the motorway network, the city is the 7th-most-visited city in Southern Europe, after Istanbul, Barcelona, Madrid and Milan, with 1,740,000 tourists in 2009. The Lisbon region contributes with a higher GDP PPP per capita than any region in Portugal.
Its GDP amounts to 96.3 billion USD and thus $32,434 per capita, the city occupies 32nd place of highest gross earnings in the world. Most of the headquarters of multinationals in the country are located in the Lisbon area and it is the political centre of the country, as its seat of Government and residence of the Head of State. Lisbon is one of the oldest cities in the world, julius Caesar made it a municipium called Felicitas Julia, adding to the name Olissipo. Ruled by a series of Germanic tribes from the 5th century, in 1147, the Crusaders under Afonso Henriques reconquered the city and since it has been a major political and cultural centre of Portugal. Unlike most capital cities, Lisbons status as the capital of Portugal has never been granted or confirmed officially – by statute or in written form. Its position as the capital has formed through constitutional convention, making its position as de facto capital a part of the Constitution of Portugal. It has one of the warmest winters of any metropolis in Europe, the typical summer season lasts about four months, from June to September, although in April temperatures sometimes reach around 25 °C.
Although modern archaeological excavations show a Phoenician presence at this location since 1200 BC, another conjecture based on ancient hydronymy suggests that the name of the settlement derived from the pre-Roman appellation for the Tagus, Lisso or Lucio. Lisbons name was written Ulyssippo in Latin by the geographer Pomponius Mela and it was referred to as Olisippo by Pliny the Elder and by the Greeks as Olissipo or Olissipona. The Indo-European Celts invaded in the 1st millennium BC, mixing with the Pre-Indo-European population and this indigenous settlement maintained commercial relations with the Phoenicians, which would account for the recent findings of Phoenician pottery and other material objects
A stock exchange or bourse is an exchange where stock brokers and traders can buy and/or sell stocks and other securities. Stock exchanges may provide facilities for issue and redemption of securities and other financial instruments, Securities traded on a stock exchange include stock issued by listed companies, unit trusts, pooled investment products and bonds. Stock exchanges often function as continuous auction markets, with buyers and sellers consummating transactions at a central location, to be able to trade a security on a certain stock exchange, it must be listed there. Trade on an exchange is restricted to brokers who are members of the exchange, the initial public offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. A stock exchange is often the most important component of a stock market and demand in stock markets are driven by various factors that, as in all free markets, affect the price of stocks.
There is usually no obligation for stock to be issued via the exchange itself. Such trading may be off exchange or over-the-counter and this is the usual way that derivatives and bonds are traded. Increasingly, stock exchanges are part of a securities market. The idea of debt dates back to the ancient world, as evidenced for example by ancient Mesopotamian clay tablets recording interest-bearing loans, there is little consensus among scholars as to when corporate stock was first traded. Some see the key event as the Dutch East India Companys founding in 1602, economist Ulrike Malmendier of the University of California at Berkeley argues that a share market existed as far back as ancient Rome. One such service was the feeding of geese on the Capitoline Hill as a reward to the birds after their honking warned of a Gallic invasion in 390 B. C. Participants in such organizations had partes or shares, a concept mentioned various times by the statesman, in one speech, Cicero mentions shares that had a very high price at the time.
Such evidence, in Malmendiers view, suggests the instruments were tradable, the societas declined into obscurity in the time of the emperors, as most of their services were taken over by direct agents of the state. Tradable bonds as a used type of security were a more recent innovation, spearheaded by the Italian city-states of the late medieval. While the Italian city-states produced the first transferable government bonds, they did not develop the other ingredient necessary to produce a fully fledged capital market, the Dutch East India Company became the first company to offer shares of stock. Control of the company was held tightly by its directors, with shareholders not having much influence on management or even access to the companys accounting statements. However, shareholders were rewarded well for their investment, the company paid an average dividend of over 16 percent per year from 1602 to 1650. Financial innovation in Amsterdam took many forms, by the 1620s, the company was expanding its securities issuance with the first use of corporate bonds
Toronto is the most populous city in Canada and the provincial capital of Ontario. With a population of 2,731,571, it is the fourth most populous city in North America after Mexico City, New York City, and Los Angeles. A global city, Toronto is a centre of business, finance and culture. Aboriginal peoples have inhabited the area now known as Toronto for thousands of years, the city itself is situated on the southern terminus of an ancient Aboriginal trail leading north to Lake Simcoe, used by the Wyandot and the Mississauga. Permanent European settlement began in the 1790s, after the broadly disputed Toronto Purchase of 1787, the British established the town of York, and designated it as the capital of Upper Canada. During the War of 1812, the town was the site of the Battle of York, York was renamed and incorporated as the city of Toronto in 1834, and became the capital of the province of Ontario during the Canadian Confederation in 1867. The city proper has since expanded past its original borders through amalgamation with surrounding municipalities at various times in its history to its current area of 630.2 km2.
While the majority of Torontonians speak English as their primary language, Toronto is a prominent centre for music, motion picture production, and television production, and is home to the headquarters of Canadas major national broadcast networks and media outlets. Toronto is known for its skyscrapers and high-rise buildings, in particular the tallest free-standing structure in the Western Hemisphere. The name Toronto is likely derived from the Iroquois word tkaronto and this refers to the northern end of what is now Lake Simcoe, where the Huron had planted tree saplings to corral fish. A portage route from Lake Ontario to Lake Huron running through this point, in the 1660s, the Iroquois established two villages within what is today Toronto, Ganatsekwyagon on the banks of the Rouge River and Teiaiagonon the banks of the Humber River. By 1701, the Mississauga had displaced the Iroquois, who abandoned the Toronto area at the end of the Beaver Wars, French traders founded Fort Rouillé on the current Exhibition grounds in 1750, but abandoned it in 1759.
During the American Revolutionary War, the region saw an influx of British settlers as United Empire Loyalists fled for the British-controlled lands north of Lake Ontario, the new province of Upper Canada was in the process of creation and needed a capital. Dorchester intended the location to be named Toronto, in 1793, Governor John Graves Simcoe established the town of York on the Toronto Purchase lands, instead naming it after Prince Frederick, Duke of York and Albany. Simcoe decided to move the Upper Canada capital from Newark to York, the York garrison was constructed at the entrance of the towns natural harbour, sheltered by a long sandbar peninsula. The towns settlement formed at the end of the harbour behind the peninsula, near the present-day intersection of Parliament Street. In 1813, as part of the War of 1812, the Battle of York ended in the towns capture, the surrender of the town was negotiated by John Strachan. US soldiers destroyed much of the garrison and set fire to the parliament buildings during their five-day occupation, the sacking of York was a primary motivation for the Burning of Washington by British troops in the war
In finance, a futures contract is a standardized forward contract which can be easily traded between parties other than the two initial parties to the contract. The parties initially agree to buy and sell an asset for an agreed upon today, with delivery and payment occurring at a future point. Because it is a function of an asset, a futures contract is a derivative product. Contracts are negotiated at futures exchanges, which act as a marketplace between buyers and sellers, the buyer of a contract is said to be long position holder, and the selling party is said to be short position holder. For example, in gold trading, the margin varies between 2% and 20% depending on the volatility of the spot market. The first futures contracts were negotiated for agricultural commodities, and contracts were negotiated for natural resources such as oil. The original use of futures contracts was to mitigate the risk of price or exchange rate movements by allowing parties to fix prices or rates in advance for future transactions.
The Chicago Board of Trade listed the first-ever standardized exchange traded forward contracts in 1864, by 1875 cotton futures were being traded in Bombay in India and within a few years this had expanded to futures on edible oilseeds complex, raw jute and jute goods and bullion. The 1972 creation of the International Monetary Market, the worlds first financial futures exchange, in 1976, the IMM added interest rate futures on US treasury bills, and in 1982 they added stock market index futures. Although futures contract are oriented towards a future point, their main purpose is to mitigate risk of default by either party in the intervening period. In this vein, the futures exchange requires both parties to put up initial cash, or a bond, known as the margin. To mitigate the risk of default, the product is marked to market on a basis where the difference between the initial agreed-upon price and the actual daily futures price is reevaluated daily. If the margin account goes below a certain value set by the Exchange, a call is made.
This process is known as marking to market, thus on the delivery date, the amount exchanged is not the specified price on the contract but the spot value. Upon marketing the strike price is reached and creates lots of income for the caller. To minimize credit risk to the exchange, traders must post a margin or a performance bond, to minimize counterparty risk to traders, trades executed on regulated futures exchanges are guaranteed by a clearing house. The clearing house becomes the buyer to each seller, and the seller to each Buyer and this enables traders to transact without performing due diligence on their counterparty. Margin requirements are waived or reduced in cases for hedgers who have physical ownership of the covered commodity or spread traders who have offsetting contracts balancing the position