What is a futures contract?

A futures contract is a legally binding agreement to buy or sell an asset at a predetermined price on a specific expiry date. The buyer of a futures contract has the obligation to receive the underlying asset, while the seller is obliged to part with their asset for the contracted price.

What is futures trading?

A futures contract, better known as futures, is a legally binding agreement between two parties to buy or sell an underlying asset (commodity or financial instrument) at a predetermined price at an agreed time in the future.

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.

Is a futures contract a derivative?

The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price. The specified time in the future when delivery and payment occur is known as the delivery date. Because it derives its value from the value of the underlying asset, a futures contract is a derivative .