What is an “Underlying” and how is it different than “Contract”?
An index or stock enabled for trading on futures is called an “Underlying” e.g. NIFTY (index) and ACC (stock). There may be various tradable contract for the same underlying based on its different expiration period. For example Fut – ACC – 27 Feb 2002, Fut – ACC – 27 Mar 2002 and Fut – ACC – 27 Apr 2002 are “contracts” available for trading in futures having ACC as “underlying”.
A commodity enabled for trading on futures is called an “Underlying” e.g. Pure Gold, Rubber. There may be various tradable contracts for the same underlying based on their different expiration period. For example NCD-FUT-RBRRS4KTM-20-Jan-2006, NCD-FUT-RBRRS4KTM-20-Feb-2006 are “contracts” available for trading in futures having Rubber as “underlying”. There can be more than one underlying for different grades and location (for price basis) of the same commodity. For Eg. COTJ34BTD is Cotton J34 grade Bhatinda location and COTLSCKDI is Long Staple Cotton grade Kadi location. Similarly, COTS06KDI and COTS06SRN are two underlyings for the same grade of cotton but have their prices quoted as per different locations.
