Future Contract Trading Concept You Do Not Want to Miss
Future Contract is a standardized contract that traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price.
The future date is called the delivery date or final settlement date.
The preset price is called the futures price.
A futures contract gives the holder the obligation to buy or sell.
Both parties of a "futures contract" must fulfill the contract on the settlement date.
The seller delivers the commodity to the buyer then cash is transferred from the futures trader who sustained a loss to the one who made a profit such as when the price of the commodities is brought at a preset price US$ 1000 and when the settlement date it has become US$ 800, but they still need to fulfill the contract preset amount that is US$ 1000.
To exit the commitment prior to the settlement date, the holder of a futures position has to offset the position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.
Example: If you're a baker and you need to have wheat to bake your special walnut wheat sourdough bread next summer, and you're not sure that there is going to be enough wheat to sold in the market at that time so you can buy a futures contract to guarantee that you'll have the amount of wheat you wanted with a preset price.
Who trades futures? Hedgers Who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes such as when the fluctuation of gold price, you may want it to set a price which you and the gold producer agreed upon.
Speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical to produce it becoming a finish products and they sell the contract to other producers when the prices of the contract has rises.
The future date is called the delivery date or final settlement date.
The preset price is called the futures price.
A futures contract gives the holder the obligation to buy or sell.
Both parties of a "futures contract" must fulfill the contract on the settlement date.
The seller delivers the commodity to the buyer then cash is transferred from the futures trader who sustained a loss to the one who made a profit such as when the price of the commodities is brought at a preset price US$ 1000 and when the settlement date it has become US$ 800, but they still need to fulfill the contract preset amount that is US$ 1000.
To exit the commitment prior to the settlement date, the holder of a futures position has to offset the position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.
Example: If you're a baker and you need to have wheat to bake your special walnut wheat sourdough bread next summer, and you're not sure that there is going to be enough wheat to sold in the market at that time so you can buy a futures contract to guarantee that you'll have the amount of wheat you wanted with a preset price.
Who trades futures? Hedgers Who have an interest in the underlying commodity and are seeking to hedge out the risk of price changes such as when the fluctuation of gold price, you may want it to set a price which you and the gold producer agreed upon.
Speculators, who seek to make a profit by predicting market moves and buying a commodity "on paper" for which they have no practical to produce it becoming a finish products and they sell the contract to other producers when the prices of the contract has rises.