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| What is Future Contracts |
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Futures are contractual agreements made between two parties through a regulated futures exchange. The parties agree to buy or sell an asset - a foreign currency, or some other item - at a certain time in the future at a mutually agreed upon price. Each futures contract specifies the quantity and quality of the item, expiration month, the time of delivery and virtually all the details of the transaction except price , which the two parties negotiate based on current market conditions. Generally, market participants do not hold their futures contracts until termination but rather offset futures contracts they have bought by a subsequent sale; or, offset futures contracts they have sold by a subsequent purchase. In broadest terms, futures are about anticipated future prices of basic commodities and financial instruments, based on current information. |
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| Trading Futures |
Futures contracts price agreements are bought and sold in a marketplace of opportunity for two groups: hedgers, who seek to offset price risk, and traders, who try to make a profit from favorable price fluctuations.
Hedgers are typically businesses and financial institutions who buy and sell futures contracts seeking to “lock in” future prices for commodities that are essential to their business operations.
Traders are a diverse group that includes day traders, financial institutions such hedge funds, and arbitragers. These groups are brought together at a futures exchange, which provides a venue where their orders may interact on a trading floor or a computer network, and where price agreements can be negotiated . |
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