Capitalize on Future Price Movements
Capitalize on Future Price Movements
A future is a legally binding contract to buy or sell a specific quantity of something in the future at a predetermined price. Futures are usually used for tangible goods such as currencies or oil. These physical goods are also called commodities. They can also be issued on other securities, such as stocks and bonds, or on stock indexes.
Things To Know
- Futures are usually used for tangible goods, but they can also be used for stocks and bonds.
Why use futures?
Futures are used to capitalize on future price movements. Let’s say you believe the price of wheat is going to go up six months from now. You buy a futures contract to buy wheat six months from now at today’s price. If the price of wheat goes up, you sell your contract at the higher price and make a profit. If wheat prices go down, you sell it and take a loss. Because futures contracts involve future trades, you can sell your contract now and buy it back later, meeting your agreement and realizing a difference in price.