What are futures markets?

Futures markets are also called futures exchanges. Traders use futures exchanges to hedge against price volatility and speculate on the future prices of stock indexes, currencies, commodities, interest rates and other assets. A futures contract is a contract to exchange a particular security at a specific price on a specific future date.

What is a futures contract?

Futures contracts are made in an attempt by producers and suppliers of commodities to avoid market volatility. These producers and suppliers negotiate contracts with an investor who agrees to take on both the risk and reward of a volatile market.

What are the advantages and disadvantages of a futures contract?

While futures contracts give traders the advantages of hedging risk, access to highly liquid markets, and the stability of a contract, there are still some disavantages of futures. For example, a trader can predict, but does not fully know, which way the markets will move before opening a futures contract.

What is the difference between a spot price and a futures price?

Many commodities are traded in both spot and futures markets. A security, currency or commodity 's spot price is the price at which it is available to be purchased in real time for immediate settlement. Futures contracts are priced for settlement on the particular contract's expiration date.