“Futures” refer to financial contracts that obligate the parties involved to buy or sell an asset at a predetermined future date and price. These contracts are standardized agreements traded on organized exchanges, facilitating speculation and risk management. Futures contracts exist for various assets, including commodities like gold, oil, and agricultural products, as well as financial instruments like stock indices, interest rates, and currencies.

Investors use futures for diverse reasons. Speculators aim to profit from price fluctuations, capitalizing on their ability to forecast market movements. On the other hand, hedgers use futures to mitigate the risk of adverse price changes in the underlying asset. For instance, a farmer may use a corn futures contract to lock in a future selling price, providing protection against potential price declines.

The key feature of futures is leverage, enabling traders to control a larger position with a relatively small amount of capital. This amplifies both potential gains and losses, making futures trading a high-risk, high-reward endeavor. Additionally, futures markets contribute to price discovery and liquidity, fostering efficient markets by reflecting current expectations and sentiments about future asset prices.

Market participants engage in futures trading through intermediaries like brokers, and these transactions occur in regulated exchanges. Clearinghouses play a crucial role by ensuring the fulfillment of contract obligations and reducing counterparty risk. Futures trading is integral to global financial markets, serving as a vital tool for price discovery, risk management, and portfolio diversification.