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Short story by Isaac Asimov
By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.
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
Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value. buy futures contract example
A speculator with no interest in owning actual oil believes prices will rise due to geopolitical tension. What Are Futures? How Futures Contracts Work
Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels). By harvest, corn hits $6
The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .
Profits and losses are calculated and settled in your account at the end of every trading day. When you "buy" a futures contract, you enter
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)