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Futures trading involves contracts that obligate buyers and sellers to transact an asset at a predetermined future date and price. These assets can range from commodities like oil and gold to financial instruments like stock indices. Here's a breakdown of key aspects:

* Standardized Contracts:

* Futures contracts are standardized, meaning their specifications (quantity, quality, delivery date) are uniform, facilitating exchange trading.

* Leverage:

* Futures trading utilizes leverage, allowing traders to control large positions with relatively small amounts of capital (margin). This amplifies both potential profits and losses.

* Speculation and Hedging:

* Traders use futures for speculation, aiming to profit from price fluctuations.

* Businesses use them for hedging, mitigating risks associated with price volatility. For example, an airline might hedge against rising fuel costs.

* Exchanges:

* Futures contracts are traded on exchanges like the Chicago Mercantile Exchange (CME). These exchanges provide a regulated marketplace and ensure contract fulfillment.

* Risk:

* Futures trading is inherently risky due to leverage. Price fluctuations can lead to significant losses, exceeding the initial investment.

In essence, futures trading is a complex but powerful tool for both speculation and risk management.