What Are Futures?
Futures are financial contracts that allow two parties to agree on a price for an asset at a future date. They are used by investors and traders as hedging tools, allowing them to protect themselves from market volatility or speculate on the direction of prices. Futures can be based on commodities such as oil, gold, wheat, corn and other agricultural products; currencies; stocks; bonds; interest rates and more. The buyer agrees to purchase the underlying asset at the agreed-upon price when the contract expires in exchange for paying an upfront fee called margin.
The futures markets provide liquidity and transparency which allows participants to manage their risk exposure while taking advantage of potential opportunities in volatile markets. By using leverage provided by brokers, traders can increase their buying power without having to put up all of the capital required for purchasing large amounts of assets outright. This makes it easier for smaller investors who may not have access to larger sums of money needed for investing directly into certain assets like stocks or real estate.