Futures are binding financial contracts between two parties to buy or sell a specific asset (such as commodities, stocks, or currencies) at a predetermined price on a previously agreed future date.

Futures are considered a type of financial derivatives traded on organized exchanges and are used for purposes such as speculating on price movements or hedging against risks.

How do futures contracts work?

1. Pre-agreement:

An agreement is made between two parties (a buyer and a seller) to buy and sell a certain asset at a specific price and date in the future.

2. Legal obligation:

This contract is binding on both parties; the buyer commits to receiving the asset and the seller to delivering it when the specified settlement date arrives.

3. Trading on exchanges:

These contracts are traded on organized exchanges like the Chicago Exchange, which provides liquidity and reduces risks.

What are their uses?

Speculation:

On the rise or fall of the underlying asset's prices to achieve profit.

Hedging:

Used to protect investments from unexpected future price fluctuations.

What assets can be traded?

Commodities: such as gold, oil, corn, and wheat.

Indices: such as stock indices.

Currencies: such as digital currencies.

Bonds: such as government bonds.