Futures contracts are derivative financial agreements where both the buyer and seller commit to buy or sell an asset at a predetermined price at a specified future date, irrespective of the current market value at the time of expiry of the contract. These contracts represent a specific quantity of the underlying asset and facilitate a standardised trading process on futures exchanges.
Futures markets typically use a high level of leverage, which implies that only a small percentage of the total contract value needs to be deposited in order to trade.
Instead of investing the full amount, the trader is required to deposit only a small portion of that amount as initial margin. The specific amount retained by the broker depends on the size of the contract, the level of confidence of the trader and the conditions set by the broker
Futures can also serve as an instrument to hedge the risk associated with changes in the price of the underlying asset. In this context, the objective is not speculation, but to prevent or mitigate potential losses caused by price changes. Many hedging companies use futures to protect their positions or to secure the supply of the underlying asset
Futures contracts provide traders with the ability to make assumptions about the direction in which the price of a commodity will change. If a futures contract is purchased and the price of the commodity increases, closing the contract above the initial price at expiration is likely to result in a profit
Global futures markets are characterised by high liquidity and efficient trade execution due to low barriers to entry. CFD trading on futures is popular among both beginners and experienced traders who value a flexible and diverse investment portfolio