oboloo

oboloo Glossary

Futures

oboloo Glossary

Futures

Futures Definition

A future is a financial contract obligating the buyer to purchase an asset, or the seller to sell an asset, at a predetermined future date and price. Futures contracts are standardized by exchange, and are traded on an exchange floor or electronically.

The most common types of assets traded in futures markets include commodities, securities, and currencies. However, almost any type of asset can be traded in a futures market if there is sufficient interest from buyers and sellers.

Futures markets exist because they provide traders with opportunities to hedge against price risk. For example, a farmer who is worried about the possibility of a decrease in the price of corn may choose to enter into a corn futures contract. If the price of corn falls below the contracted price, the farmer will make money on the difference. Similarly, if the price of corn rises above the contracted price, the farmer will incur a loss.

In addition to providing hedging opportunities, futures markets also allow traders to speculate on the direction of prices. Speculators typically seek to profit from changes in prices by taking positions in contracts that will gain in value if prices move in the desired direction.

The vast majority of futures contracts are closed out before delivery date. For example, most corn futures contracts are settled through cash settlement, meaning that no actual corn changes hands; rather, gains or losses are based on the difference between the contract price and the settlement price.

Want to find out more about procurement?

Access more blogs, articles and FAQ's relating to procurement

Oboloo transparent

The smarter way to have full visibility & control of your suppliers

Contact

Feel free to contact us here. Our support team will get back to you as soon as possible

Oboloo transparent

The smarter way to have full visibility & control of your suppliers

Contact

Feel free to contact us here. Our support team will get back to you as soon as possible

© 2024 oboloo Limited. All rights reserved. Republication or redistribution of oboloo content, including by framing or similar means, is prohibited without the prior written consent of oboloo Limited. oboloo, Be Supplier Smart and the oboloo logo are registered trademarks of oboloo Limited and its affiliated companies. Trademark numbers: UK00003466421 & UK00003575938 Company Number 12420854. ICO Reference Number: ZA764971