What is Premium and Discount in the futures market?
When a futures contract is trading above the spot price, it is said to be at a Premium in the equity derivatives market and Contango in the commodity derivatives market. Both these terms indicate the same thing; that the contract is trading above its spot price.
Similarly, when a futures contract is trading below the spot price, it is said to be at a Discount in the equity derivatives market and Backwardation in the commodity derivatives market.
For example,
| Stock | Market/Spot Price | Futures Price | Premium/ (Discount) |
|---|---|---|---|
| HDFC | Rs. 2,842.25 | Rs. 2,830.15 | (Rs 12.10) |
| SBIN | Rs. 488.65 | Rs. 490.85 | Rs. 2.20 |
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