Futures are contracts that are executed in a very specific manner, at a very specific time in the future.
The whole point of a future contract is to mitigate risk.
You assume certain market conditions will exist at a certain time, and so you contract to buy or sell a certain asset at that time with that price.
There two other reasons why futures exist.
First, arbitrage.
Arbitrage means buying an asset now, over here, at a certain price, and selling it right away, over there, at a higher price.
Imagine being the owner of a pub. You’re on the phone with a wholesaler and you buy a can of exotic IPA for $2. You hang up and sell that very same can of exotic IPA to your customer for $4.
Bit of a weird example but you get the gist.
The other reason is speculation.
You’re speculating that a certain asset may rise in price more than expected, so you buy it with a futures contract in the hope of being able to secure it cheaper than you would at the true market value when the time comes.
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