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The excess of one futures contract price over that of another, or over the cash market price. Or, The amount agreed upon between the purchaser and seller for the purchase or sale of a futures option. Remember that purchasers pay the premium and sellers (writers) receive the premium. If you were to take a conventional course on Futures trading, you would probably be introduced to the futures pricing formula right at the very beginning of the course. However we have deliberately opted to talk about it now, at a much later stage. The reason is simple – if you are trading futures based on technical analysis (I assume a vast majority of you are doing this) then you would not really need to know how the futures are priced, although a good working knowledge would help.

We know the futures instrument derives its value from its respective underlying. We also know that the futures instrument moves in sync with its underlying. If the underlying price falls, so would the futures price and vice versa.