Futures are standardised contracts that obligate the buyer to purchase, and the seller to sell, a specific asset at a predetermined price on a future date. These contracts are commonly used for Commodities, Indices, Forex, and Cryptocurrencies. Futures trading allows investors to speculate on price movements or hedge existing positions. They are traded on exchanges and often involve margin and leverage, amplifying both potential gains and risks. Futures have expiry dates and settlement mechanisms, which can be physical delivery or cash settlement. Due to their structured nature, futures are popular among institutional traders and experienced market participants.
Example:
A Commodities trader enters a wheat futures contract to lock in pricing for future delivery.
