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Futures Market | Investing

Updated: Jan 7, 2022

Futures Contract

In finance, a futures contract is a standardized legal agreement to buy or sell something at a predetermined price at a specified time in the future, between parties not known to each other. The asset transacted is usually a commodity or financial instrument. (Wikipedia)

About

Futures are derivative products, that derive their value from the price movement of an underlying instrument such as Gold, Coffee, a Currency pair, a Stock Index or a Government Bond. (In finance, a derivative is a contract that derives its value from the performance of an underlying entity. This underlying entity can be an asset, index, or interest rate, and is often simply called the "underlying". (Wikipedia) They are essentially contracts with an obligation to buy or to sell an instrument (in a certain quantity) at or before a fixed time for an agreed price. Futures are traded at large exchanges that formulate the contract terms. The buyer of a contract holds a long position, the seller of a contract holds a short position. Futures have a finite lifespan that ends at a preset expiration date. They can either be used to hedge investment positions (to mitigate the risk of price movements) or to speculate (to try and profit from price movements). Futures trading started 150 years ago as a way to manage agricultural production. Planting and harvesting cycles created swings in prices and futures contracts were created to manage that risk. They have evolved into the exchange-traded instruments we know today, which are a key part of the financial system. (Tradingview)



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