Are you struggling to understand the futures stock market? In this article I am going to give you a basic overview of futures.
The futures stock market is made up of futures contracts; these are a type of derivative instrument in which two parties agree to transact a set of financial instruments or physical commodities for future delivery at a particular price.
Basically if you buy a futures contract, you are agreeing to buy something that a seller has not yet produced for a set price.
Participating in the futures stock market does not mean that you will be responsible for receiving or delivering large inventories of physical commodities.
Buyers and sellers of futures enter primarily enter into futures contracts to hedge risk or speculate rather than to exchange physical goods.
This is why futures are used as financial instruments by not only producers and consumers but also by speculators.
The futures stock market is a major financial hub.
There is intense competition among buyers and sellers; the market is extremely liquid, risky and complex.
What exactly is a futures contract? Let's say you decide to subscribe to cable TV.
As the buyer you enter into an agreement with the cable company to receive a service at a certain price every month for the next year.
This contract is similar to a futures contract, in that you have agreed to receive a product at future date, with the price and terms for delivery already set.
You have secured your price for now and the next year, even if the price of cable rises.
By entering into this contract you have reduced your risk of higher prices and this, is precisely what futures are all about