Assets that can be traded through futures include commodities (e.g. oil, gold, wheat), financial instruments (currencies, bonds) and stock indices.
To trade futures, market participants pay a security deposit called margin.
This is only a small fraction of the full value of the contract, allowing leverage to be used to increase potential profits.
The exchange sets margin requirements, which can vary depending on market volatility and risk.
Unlike options, a futures contract obligates its holder to fulfill the terms of the transaction, whether buying or selling an asset.
Futures contracts can be settled by physical delivery of the asset or by cash settlement.
In the case of physical delivery, the seller agrees to deliver the asset and the buyer agrees to accept it.
In case of cash settlement, the transaction is finalized by paying the difference between the contract price and the current market price at the time of contract expiration.
One of the key functions of the futures market is risk hedging.
Participants exposed to asset price fluctuations (e.g., commodity producers or companies dependent on oil prices) can use futures to protect themselves against unfavorable price movements.
This helps to lock in future prices and reduce uncertainty.
The futures market plays an important role in shaping market prices and expectations about future market movements.
Prices can serve as an indicator of market participants’ expectations of future supply and demand conditions.
This is particularly important for agriculture, energy, and other industries where accurate price forecasting can have significant economic importance.
Investors can use futures contracts to diversify their investment portfolios.
For example, they can add futures on commodities or stock indexes to reduce overall risk and increase return potential.
Futures also allow investors to access markets that may not be accessible through traditional financial instruments.
Modern technology plays a key role in the futures market.
The use of algorithmic trading, automated trading systems, and machine learning allows for analyzing huge amounts of data and making quick decisions.
Online platforms and mobile applications provide real-time access to the markets, enabling high speed order execution and risk management.
The futures market is an important and complex component of the global financial system.
It provides participants with a wide range of opportunities to hedge risks, speculate and diversify their investment portfolio.
Due to their high level of liquidity and leverage, futures are a popular instrument among investors.
However, despite the numerous advantages, trading requires prudence and a thorough understanding of risks.
For successful work in this market, it is important to have not only theoretical knowledge, but also practical experience and the ability to react quickly to changes in market conditions.