What is Futures Trading?
In business, the future price is the price at which one will sell a product, make a purchase, or make some other arrangement. For example, when a company decides to enter into a marketing partnership with a new client; the future price will be determined by how well the relationship develops. To a great extent, the future price takes into account future effects like profitability, market penetration, and loyalty. The future price also takes into account how long one plans to stay with a company, its attractiveness to other companies, and other external variables like competitors.
Futures trading, unlike other forms of trading, revolves around a single underlying asset, whether it is stock currency, or some other financial instrument. The price of an underlying asset is the current cost of doing or producing it, less whatever amount is paid to the seller as a discount, less whatever current owners pay as fees, less whatever cash is invested in the company, and finally, less whatever costs are deducted from the profits over time. The future price is, therefore, the current discounted value of an underlying asset, less whatever current owners pay as fees. Futures contracts often specify a date for when a certain asset is supposed to deliver an asset. There are a number of different futures contracts, but the most common ones are commodity food market, bond market, and petroleum market.
Future contracts can be used for any range of financial instruments. Some of the most popular are stock futures, forex futures, and equity futures. However, the most popular futures contracts tend to be futures for commodities and currencies. When it comes to figuring out the future price, one must remember that future prices are never set in stone and no amount of forecasting can give anyone an exact prediction of what will happen in the future.