In futures trading, the terms "discount", "premium", and "at par" refer to the relationship between the futures price and the spot price of the underlying asset.
1. *At Par*:
Futures price = Spot price
No discount or premium; the futures price equals the spot price.
2. *Premium*:
Futures price > Spot price
The futures price is higher than the spot price, indicating a premium. This can occur due to:
- High demand for the futures contract
- Expectations of a price increase
- High interest rates or storage costs
3. *Discount*:
Futures price < Spot price
The futures price is lower than the spot price, indicating a discount. This can occur due to:
- Low demand for the futures contract
- Expectations of a price decrease
- Low interest rates or storage costs
These relationships can provide insights into market sentiment and potential trading opportunities. However, it's essential to consider other factors and risks before making trading decisions.
Here's an example:
- Spot price of XYZ stock: Rs.100
- Futures price of XYZ stock: Rs.105 (premium)
- Futures price of ABC stock: Rs.95 (discount)
In this example, the XYZ stock futures are trading at a premium, indicating high demand or expectations of a price increase. In contrast, the ABC stock futures are trading at a discount, indicating low demand or expectations of a price decrease.
Comments
Post a Comment
If you have doubts, please let me know