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.

Can you buy or sell a futures contract?

You can buy or sell a futures contract. If you buy the contract, you agree to pay a certain price on a certain date. If you sell a contract, you agree to provide the underlying asset at the specified price. Futures contracts are typically traded on a stock exchange, which sets the standards for each contract.

How long does a futures contract last?

The duration of the contract may vary depending on the underlying asset. For example, commodity futures are traded within 3 months while interest rate futures are traded within 30 days only. The prices of stock futures and currency futures may differ from prices of their underlying assets and can be either higher or lower.

How does a futures exchange work?

Futures exchanges establish standardized contracts for trading on their trading venues, and they usually specify the following: assets to be delivered in the contract, delivery arrangements, delivery months, pricing formula for daily and final settlement, contract size, and price position and limits.