What is a futures contract?

Futures contracts are financial derivatives that oblige the buyer to purchase some underlying asset (or the seller to sell that asset) at a predetermined future price and date. A futures contract allows an investor to speculate on the direction of a security, commodity, or financial instrument, either long or short, using leverage.

What is the difference between futures and options?

Both contracts enable people to speculate on the future market price of an asset, but while futures always result in the physical or cash-equivalent settlement of the contract, an option can be left to expire worthless. Futures contracts are popular derivatives, used to exchange physical assets, as well as speculate and hedge markets.

What happens if the price of a futures contract decreases?

The investor would then exercise his right to buy the asset at the lower price obtained through buying the futures contract, and then resell the asset at the higher current market price. Investors profit from the right to sell if the price of the underlying asset decreases.

What are the different types of futures?

Metal Futures: These contracts trade in industrial metals, such as gold, steel, and copper. Currency Futures: These contracts provide exposure to changes in the exchange rates and interest rates of different national currencies. Financial Futures: Contracts that trade in the future value of a security or index.