Futures Contract
Definition
A standardized agreement to buy or sell an asset at a predetermined price on a specific future date, traded on exchanges.
Explanation
Futures contracts exist for commodities (oil, gold, corn), financial instruments (S&P 500, Treasury bonds), currencies, and even bitcoin. Unlike options, futures create an obligation (not a right) to buy or sell. They require margin deposits (typically 3-12% of contract value), providing significant leverage. Futures serve three purposes: hedging (farmers locking in crop prices), speculation (directional bets with leverage), and price discovery (futures prices reflect market expectations about future spot prices).
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