Introduction
📈 What is Futures Trading?
Futures trading involves buying and selling contracts that give the right to buy or sell an asset at a specific price on a future date. Instead of trading the actual asset immediately, traders agree to transact later at a price decided today.
Example:
Suppose you believe the price of gold will increase next month. You can buy a futures contract now to purchase gold at today’s price, which you can sell later at the higher price.
🤔 Why Do People Trade Futures?
- Hedging:
Protecting against price changes. For example, a farmer might sell futures to lock in a price for their crop.
- Speculation:
Making profits from predicting price movements. Traders try to buy low and sell high.
‼️ Basic Terminology
- Contract: An agreement to buy or sell an asset at a future date at a set price.
- Underlying Asset: The asset involved, such as gold, oil, or stocks.
- Margin: The initial deposit required to open a futures position.
- Leverage: Borrowed money used to increase potential returns (but also increases risk).
- Expiry Date: The date when the futures contract is settled.
