A futures contract is an agreement between two parties. The buyer pays the seller today for the promise of the commodity at a future date. Futures contracts are traded in futures exchanges. The commodities can be things such as livestock, agriculture produce, metals, energy, and financial products. Trading futures can be profitable. But it is also complex and very risky. Instead of gaining a profit, an investor can lose the money invested. They could be required to pay more than they invested.
Examples[change | change source]
- Sam has an apple orchard. He needs money to pay for labor and fertilizer. Bob offers to pay Sam $20 in exchange for 2 bushels of apples after harvest. Bob now has two futures of apples.
References[change | change source]
- "Definition of 'Futures Contract'". The Economic Times. Bennett, Coleman & Co. Ltd. Retrieved December 9, 2016.
- "What is a 'Futures Contract'". Investopedia. Retrieved December 9, 2016.
- "Futures Trading Basics". TheOptionsGuide.com. Retrieved 26 June 2015.
- "Futures Contract". InvestingAnswers, Inc. Retrieved December 9, 2016.
- "Futures Markets Basics". U.S. Commodies Futures Trading Commission. Retrieved 26 June 2015.