Futures trading is when investors use contracts to protect themselves from price changes in various assets, securities, and commodities. Futures trading is different from options trading because options give the holder the right to purchase or sell the underlying asset at expiration. Futures contracts don’t allow this type of move. In futures trading, the owner of the contract is obligated to fulfill the terms of the contract. So, say Investor A promises to purchase stock from Company B. The futures contract forces Investor A to buy the stock from Company B regardless of price.
Futures contracts are used to manage potential movements in prices of commodities or underlying assets. Those who participate in futures trading anticipate an increase in price in the future, and they could potentially gain by purchasing a futures contract and selling it at a later date at a higher price on the spot market. However, there’s also a potential for loss if the price of the asset is lower than the price specified in the futures contract.
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