What are Futures?
Futures are exchange-traded contracts to sell or buy financial instruments or physical commodities for Future delivery at an agreed price. There is an agreement to buy or sell a specified quantity of financial instrument/commodity in a designated Future month at a price agreed upon by the buyer and seller. To make trading possible, the exchange specifies certain standardized features of the contract.
Futures are a financial derivative known as a forward contract. A futures contract obligates the seller to provide a commodity or other asset to the buyer at an agreed-upon date. Futures are widely traded for commodities such as sugar, coffee, oil and wheat, as well as for financial instruments such as stock market indexes, government bonds and foreign currencies. The earliest known futures contract is recorded by Aristotle in the story of Thales, an ancient Greek philosopher. Believing that the upcoming olive harvest would be especially bountiful, Thales entered into agreements with the owners of all the olive oil presses in the region. In exchange for a small deposit months ahead of the harvest, Thales obtained the right to lease the presses at market prices during the harvest. As it turned out, Thales was correct about the harvest, demand for oil presses boomed, and he made a great deal of money. By the 12th century, futures contracts had become a staple of European trade fairs. At
If you have read any financial news lately, you may have heard about futures and the futures market, but what are those futures? Futures refers to future contracts, which are traded on the futures markets. Futures refers to futures contracts, which can be one of two different types, one which covers the physical delivery for a specific commodity and one which covers a cash settlement. The futures contract should specify the month that the settlement or delivery will take place. Even with contracts that call for the physical delivery of the commodity it is rare for the actual physical delivery to take place. Instead, traders in the futures market normally buy and sell futures contracts before the delivery date arrives. Selling a futures contract that was purchased previously means that the futures position is liquidated, and buying a futures contract that was previously sold will offset the trade. With futures contracts, a loss or gain is simply the difference in price between what the
