Exchange-traded funds can use futures as the assets that make up the fund. Futures ETFs give investors access to the futures market without having to trade on the futures markets. A futures contract is an agreement between a buyer and a seller based on an underlying asset.
What is an ETF & how does it work?
An ETF (a company) will purchase futures contracts and then offer a securitized version to investors. The ETF doesn't take possession of the underlying asset but continues to trade contracts to keep the futures ETF running. The fund will purchase contracts so that it mirrors the index that it is designed to track.
What is a futures contract?
A futures contract is an agreement between a buyer and a seller based on an underlying asset. The seller agrees to deliver the asset to the buyer at a future date, but the asset's price is determined on the date of the actual agreement instead of the future transaction date.
Are Futures a good investment?
Clearly, futures offer some compelling advantages to large and small investors alike. In fact, if you look at the average daily dollar volume comparisons between futures and their corresponding ETF, you will notice that futures trade multiple dollar amounts of their ETF counterpart.
