7.1 INTRODUCTION TO FUTURES
By definition, a future contract is an engagement between two parties – a buyer and a seller – (the seller) to deliver, respectively (the buyer) to receive;
(The future seller will deliver the underlying, to be received by the future buyer.)
So far, such a definition should also apply to an interbank forward contract. To be qualified as a future contract, the operation must be traded on a futures exchange. This implies two key features.
Unlike the interbank market, the futures exchange operations are fully transparent, in prices, volumes and contract specifications. To ensure enough market liquidity for attracting buyers and sellers, the exchange must standardize the contract specifications as much as possible, that is:
Example. Euro Stoxx 50 futures: standardized contract parameters: