📜 Capital Market Chronicles – Episode 173: FUTURES CONTRACTS: AN OVERVIEW (Part II)
🏦 Clearinghouse: The Bouncer of the Futures Club
Think of the clearinghouse as that tough, no-nonsense bouncer at a nightclub 🚪👮.
No shady guys get in, and everyone who’s inside has to play by the rules.
Here’s how it keeps the party under control:
1️⃣ Margin Requirement 💰
Before you join the game, you need to put down a security deposit (margin). It’s like buying an entry ticket 🎟️ — no free rides here.
2️⃣ Marking-to-Market 📉📈
At the end of every trading day, your contract is adjusted to match real market prices. If you’re winning — ka-ching! 💵 If you’re losing… well, let’s just say your broker might text you: “Bro, margin call 😬”.
3️⃣ Maintenance Margin ⚠️
Think of this like your phone battery 🔋 — you can’t let it run below a certain level. If your margin balance dips too low, you’ve gotta recharge (i.e., add more funds) or your position gets shut faster than a Wi-Fi outage during Netflix 🍿.
4️⃣ Default Protection 🛡️
Here’s the magic trick: the clearinghouse becomes the buyer to every seller and the seller to every buyer. Translation: even if your counterparty disappears like your college roommate who borrowed money 🏃♂️, the contract still holds up.
📊 Forwards vs. Futures: The Showdown
Forwards are like custom-made suits 👔—tailored, private 🤫, price locked 🔒, but beware: your counterparty might ghost you 👻. Futures are the ready-to-wear jeans 👖—standardized, daily-priced 🔄, margin mandatory 💪, settled via a clearinghouse 🏦, and mostly cash 💵. Forwards are risky but personal, futures are safe but less cuddly 😎.
💸 Margin Money: Pay a Little, Play a Lot
The beauty (and danger) of futures is you don’t need the full contract amount upfront. Just a fraction. It’s like booking a Goa trip 🏖️ by paying only the advance — but if prices crash, you might end up broke and sunburnt 🌞😂.
👉 Example:
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You agree to buy 100 Infosys shares at ₹1000 each. Total = ₹1,00,000.
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Exchange asks for a 20% margin → ₹20,000 deposit.
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If price drops to ₹900, you’re staring at a ₹10,000 loss 🥲, and need to top up your margin.
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If price rises to ₹1100, you pocket ₹10,000 profit 😎 (and probably start giving unsolicited “stock tips” to friends).
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