Futures explained

Q1. Which statement best describes “Derivative”?

1. A futures contract is an agreement to buy or sell an underlying asset at a fixed price on a set future date. It is standardised and traded on an exchange.
2. Margin is the deposit you must keep with the broker to hold a futures position. It protects the exchange against defaults.
3. Position sizing means deciding how much money to put in a single trade so that a loss stays small relative to your total capital.
4. A derivative is a financial contract whose value comes from an underlying asset such as a share, an index or a commodity.

Q2. Which statement best describes “Margin”?

1. A stop-loss is a preset exit point that limits a loss if the price moves against you. It controls risk but does not guarantee the exit price.
2. Margin is the deposit you must keep with the broker to hold a futures position. It protects the exchange against defaults.
3. A futures contract is an agreement to buy or sell an underlying asset at a fixed price on a set future date. It is standardised and traded on an exchange.
4. A short position is selling a futures contract. It gains when the price falls and loses when it rises, with no upper limit to the loss.