Futures are standardized financial contracts that obligate the buyer to purchase, and the seller to sell, a specific asset at a predetermined price on a set future date. These contracts derive their value from an underlying asset, which can be commodities (like oil, wheat, or gold), financial instruments (such as stocks or bonds), currencies, or even cryptocurrencies
. Key characteristics of futures include:
- Obligation: Both parties must fulfill the contract at expiration-buyers must buy and sellers must sell the underlying asset at the agreed price, regardless of the current market price
- Standardization: Futures contracts are standardized in terms of quantity and quality of the underlying asset, facilitating trading on futures exchanges
- Trading and Settlement: Most futures contracts are closed out before expiration, so physical delivery of the asset is rare. Instead, many contracts are settled financially
- Uses: Futures are used for hedging against price fluctuations (e.g., producers locking in prices) and for speculation on future price movements
Futures trading involves agreeing today on a price for an asset to be exchanged in the future, enabling market participants to manage risk or speculate on price changes
. In summary, futures are legal agreements to buy or sell an asset at a set price on a future date, widely used in financial markets for hedging and speculative purposes
