Futures 

Futures are derivative contracts that require the parties to interact with the asset at a predetermined date and price in the future. the buyer must buy or the seller must sell the underlying asset at a set price, even though the market value is at the expiration date.

The underlying assets include physical commodities or alternative financial instruments. Futures contracts specify the amount of the underlying asset and are standardized to facilitate trading on futures exchanges. Futures are used for hedging or trading speculation.

Futures — also known as futures contracts — allow traders to lock in the plus price or price of the underlying commodity. This contract has an expiration date and a set value that is celebrated in advance. Futures are identified by their expiration month. For example, the December gold derivative expires in December.

Traders and investors use the term “futures” in their relevance to common asset classes. However, there are many types of futures contracts offered for trading such as:

Commodity futures such as crude oil, natural gas, corn and wheat, indices such as the S&P 500.

Index

Currency futures include the euro and British pound futures that are valuable for gold and silver. US Treasury futures for bonds and other products are very important for us to note the advantages between options and futures.

American-style option contracts give the holder the right (but not the obligation) to purchase or sell the underlying plus at any time prior to the expiration date of the contract; with the European option, you can only exercise at expiration but don’t have to be forced to exercise that right.

Futures contract customers, on the other hand, are indebted to demand ownership of the underlying trade item (or equivalent money) at expiration and not at a later time. the derivatives customer will sell his position any time before expiration and is released from his obligations. During this method, the consumer of each option and futures contract enjoys closing the position of the leveraged holder before the expiration date.

Pros

Investors can use futures contracts to invest in a direction in the price of the underlying asset.

Companies can hedge the value of the raw materials or products they sell to protect them from adverse price movements.

Futures contracts only require a deposit of a small part of the contract quantity with the broker.

Cons

Investors run the risk that they will lose a sizeable amount of initial margin/capital because futures use leverage.

Very high derivatives can cause companies to miss out on profitable value movements.

Margin is a double edged sword, it means gains are strengthened but so are disadvantages.

Futures User

The futures market usually uses high leverage. Leverage means the dealer doesn’t want to put up a hundred pc of the contract price quantity after placing a trade. In contrast, the broker will require an initial margin amount consisting of a fraction of the full contract value.