Short notes on Futures Contracts



Posted on 23-04-2016        By ADMIN



Short notes on Futures Contracts

A futures contract is a formal commitment to purchase aspecified sum of a specific commodity on a designated date. Futures contractshave historically been used by industries using said commodities as inputs. Forexample, a large food processor may purchase futures in corn or other grain.Industrial concerns may acquire futures contracts in oil, copper, natural gas orother materials. In these cases, the purpose of the futures contract is toprotect the firm from an increase in price of the raw materials it uses.However, many participants in the futures markets are simply hoping to profitfrom changes in price of such commodities. If a futures contract is purchasedand the commodity's market price significantly increases, the holder of thatcontract may then sell it at a profit. This practice is called speculation.



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