Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels).
The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .
A futures contract is a legally binding agreement to buy or sell a specific asset—such as a commodity, currency, or financial index—at a predetermined price on a set future date. When you "buy" a futures contract, you enter a , committing to purchase the underlying asset at the expiration date, regardless of the then-current market price. The Mechanics of Buying Futures
Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.
If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation)
Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels).
The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .
A futures contract is a legally binding agreement to buy or sell a specific asset—such as a commodity, currency, or financial index—at a predetermined price on a set future date. When you "buy" a futures contract, you enter a , committing to purchase the underlying asset at the expiration date, regardless of the then-current market price. The Mechanics of Buying Futures
Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.
If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation)
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