What is Futures Trading?
Futures trading involves the buying and selling of standardized contracts that obligate the buyer to purchase, and the seller to deliver, a specific asset at a predetermined price on a future date. These contracts are commonly used for commodities (like oil, gold, or wheat), but they also apply to financial instruments such as indexes, interest rates, and currencies.
How Futures Trading Works
When traders enter into a futures contract, they are agreeing to transact the underlying asset at a set price in the future, regardless of market fluctuations. However, most futures contracts are not held until expiration — they are traded before the due date to profit from price movements.
Key Features of Futures Trading
Leverage: Traders can control large positions with a relatively small amount of capital (known as margin). While this increases profit potential, it also magnifies losses.
Liquidity: Futures markets are highly liquid, especially for popular assets, allowing for easy entry and exit.
Hedging and Speculation: Futures are used by businesses to hedge against price volatility, and by individual traders or institutions to speculate on market direction.
Standardization: Contracts are standardized by exchanges, ensuring consistency in contract size, expiration, and settlement procedures.
It would be ideal if you note that the organization may change its medium-term rollover rates occasionally because of changes in credit markets.