How do futures work?

Futures trade on exchanges and allow traders to lock in the prices of underlying assets named in the contracts. Both parties are aware of the expiration date and prices of these contracts, which are generally established upfront. Each contract carries a multiplier that inflates its value, adding leverage to the position.

What are index futures contracts?

In this article, we explain the basics of index futures contracts and what they represent. An index futures contract is a legally binding agreement between a buyer and a seller, and it tracks the prices of stocks in the underlying index. It allows traders to buy or sell a contract on a financial index and settle it at a future date.

What is the difference between futures and options?

Futures are also compared to options, as both contract types enable you to buy and sell an underlying asset for a specific price on a future date. However, unlike futures, options contracts, give the buyer the right to leave the contract to expire worthless – they are not obliged to fulfil the contract at expiry.

How does a futures contract get its name?

A futures contract gets its name from the fact that the buyer and seller of the contract are agreeing to a price today for some asset or security that is to be delivered in the future. Are Futures and Forwards the Same Thing?