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Futures

Futures are a type of financial contract whereby an investor is obliged to buy an asset at a specified future price and date. The asset can be any financial instrument or commodity traded in the market.

Future contracts include details of the quantity and quality of the underlying assets. The contracts are standardized that allows trading in the exchange. Some of the future contracts are settled in cash while others require physical delivery of the goods. Investors can make use of a high leverage when investing in futures market as compared to the stock market.

Investors invest in futures market to speculate on the prices of the underlying asset. Additionally, investment in the futures market is used to hedge against possible losses in the event of unfavorable price movements. For instance, an investor in gold can use futures to lock in a certain price, thereby reducing the risk of losses.

An investor that invests money in the future market can take long or short position. A long position is when the investor locks in a price of an asset that he or she will buy in the future. On the contrary, a short position is one where the investor locks in a price of an asset that he will sell in the future. An investor that is holding the long position can go short without entering into a new futures contract.

Note that investing in futures is different from options. With a future contract, an investor is obligated to fulfill the terms of the contract that can be either to buy or sell an underlying asset in the future. Contrarily, an option investor has the right to buy or sell the asset after the expiry period.


Further Reading


Facts and fantasies about commodity futures
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

The Pricing of Futures and Forward Contracts.The Pricing of Futures and Forward Contracts.
elibrary.ru [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Selling city futures: The financialization of urban redevelopment policySelling city futures: The financialization of urban redevelopment policy
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Volatility in the gold futures marketVolatility in the gold futures market
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Hedging effectiveness and futures contract maturity: the case of NYMEX crude oil futuresHedging effectiveness and futures contract maturity: the case of NYMEX crude oil futures
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Finance theory and accounting fraud: Fantastic futures versus conservative historiesFinance theory and accounting fraud: Fantastic futures versus conservative histories
heinonline.org [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

The appetites of app-based finance: Affective and speculative futuresThe appetites of app-based finance: Affective and speculative futures
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Troubled futures? The global food crisis and the politics of agricultural derivatives regulationTroubled futures? The global food crisis and the politics of agricultural derivatives regulation
www.tandfonline.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …

Using neural networks for forecasting volatility of S&P 500 Index futures pricesUsing neural networks for forecasting volatility of S&P 500 Index futures prices
www.sciencedirect.com [PDF]
… 241. Views. 635. CrossRef citations to date. Altmetric. Derivative Instruments. Facts and Fantasies about Commodity Futures … Derivative Instruments. Facts and Fantasies about Commodity Futures …



Q&A About Futures


Is there any difference between investing in options and investing in futures ?

Yes , there is . With options , investors only have right while with future , investors also have obligation .

Can you go short without entering into another contract if you have already entered into one before?

Yes, you can go short without entering into another contract if you have already entered into one before .

What kind of investor would use leverage with a long position?

An investor who wants to speculate on the price movements of the underlying asset would use leverage with a long position.

What are some of the assets that can be traded on futures contracts?

Assets include financial instruments and commodities.

What kind of investor would use leverage with a short position?

An investor who wants to hedge against possible losses due to unfavorable price movements would use leverage with a short position.

What is a futures contract?

A futures contract is an agreement to buy or sell an asset at a predetermined price in the future.

Are all futures contracts settled in cash?

No, not all are settled in cash. Some require physical delivery of goods.

How does leverage work with futures contracts?

Leverage works similarly to stock market investing but it is much higher for futures contracts than stocks.

Why do people invest in the future market ?

Investors invest in the future market because they want to speculate on prices or hedge against possible losses due to unfavorable price movements .