A brief overview of futures contracts (Futures contracts) are legal agreements traded on exchanges that obligate both parties to buy or sell a specific asset (commodity, currency, index, etc.) at a specified price on a future date. Futures contracts are used for hedging risks or for speculation, providing investors with opportunities to invest in various types of assets without the need to purchase the asset itself.
Details:
Definition:
A futures contract is an agreement between two parties to buy or sell a specific asset at a specified price on a future date.
Assets:
Futures contracts can be for assets such as commodities (gold, oil, wheat, etc.), foreign currencies, stocks or financial indices, or interest rates.
Usage:
Futures contracts are used for several purposes:
Risk management: Companies or individuals can use futures contracts to hedge against price fluctuations of assets, especially in the case of companies that depend on buying or selling commodities.
Speculation: Investors can exploit their expectations about future asset price movements by buying or selling futures contracts, making a profit from the difference between the purchase price and the selling price.
Settlement:
At the end of the futures contract period, the contract is settled either by delivering the asset (in some cases) or by paying the cash difference between the contract price and the market price on the settlement date.
Trading:
Futures contracts are traded on specialized exchanges such as the Chicago Mercantile Exchange and CME Group.
Cash settlement:
In most cases, futures contracts are settled in cash, meaning the price difference is paid instead of the physical delivery of the asset.
The difference between futures and forward contracts:
A futures contract differs from a forward contract in that futures contracts are not settled daily, while forward contracts are settled daily.
In conclusion: Futures contracts are an important financial instrument in the financial market, providing investors with opportunities for investment and risk management, but they must be well understood before use.