Many traders start their journey by trading currency pairs, but then they try CFDs, stocks, and futures. We will talk about the latter today.

Many traders start their journey by trading currency pairs, but then they try CFDs, stocks, and futures. We will talk about the latter today.

A futures contract is a contract between a buyer and a seller to buy or sell an asset in the future at a pre-agreed price. Such contracts were originally created for companies to help them avoid unexpected expenses.

Consider an example. We sell coffee, but we understand that due to the pandemic, the price for it will only grow, and much more. In order to prevent a sharp jump in prices and a drop in our sales, we agree with the supplier to purchase a large batch of grains at the current market price, but in six months.

If the price of coffee really rises in the future, we will only win by buying raw materials at a lower cost. If the price does not rise, but even falls, then only the coffee supplier will benefit from such a transaction, because he will sell it for more than the current market value.

Most often, the underlying assets in a futures contract are crude oil, wheat, corn, stock indices. Such contracts, as a rule, are traded on the stock exchange, and it does not come to the actual delivery of the asset.

Often operations with futures are of speculative interest, traders actively trade them in order to capitalize on price fluctuations. They usually close their positions before the expiration and delivery date of the asset.