Futures

What are Futures?

Futures are derivatives contracts which are traded on central exchanges. They are an agreement between two parties to buy or sell an asset at a future date, for an agreed price.

In a Futures contract the buyer is long and the seller short and, as with other derivatives products, there is no need to own the underlying asset. Both parties pay an initial margin (which represents a small fraction of the total exposure) to the exchange. At the end of the contract the settlement price is compared with the initial (base) price, to calculate the profit or loss on the trade.

Why trade Futures

Futures can be used to invest in stocks, commodities or currencies and provide a different option to spot contracts. Futures contracts are transparent and allow leverage so are often used to hedge other investments. As with all margin products trading losses, as well as profits, are magnified.