Futures Trading Contracts

In foreign exchange, a future contract is a standard legal agreement to purchase or sell a certain asset at a pre-determined price in the future, among parties not necessarily known mutually to each other. The asset exchanged is typically a specific financial instrument or commodity. Futures contracts are created and traded every day in countries such as the US, China, Japan, Europe, and South Korea. They are used as tools for speculation, hedging, and interest rate arbitrage. The basic idea of a future contract is that there is a predictable and predetermined date in the future when the asset is going to be purchased at a certain price, this is done with the help of “future dates” or future price basket.

A future can take a variety of forms. In forex, traders predict the direction of the currency prices in the future and place orders accordingly. They will sell the assets they are betting on when the value is higher than the current price and then buy them when the value is lower. In stock markets, future buying and selling are done with the hopes that the prices of the stocks rising or falling in the future. This is called shorting stocks and longing stocks.

In Forex, futures contracts are used to create and manage risk portfolios. Some investors will buy numerous commodities and then hedge them using future contracts in order to protect themselves against fluctuations in market prices. Others use futures to speculate on the trends in global currencies, index futures, and commodity futures. Finally, commodities futures are also becoming popular in the real estate and financial sectors due to their low risk and leveraged nature.