An Intro to Futures: Day Trading Day 1
So What Even Is a Futures Contract?
Forward and futures contracts are financial instruments that allow market participants to offset or assume the risk of a price change of an asset over time.
IN EASIER WORDS: a type of financial agreement that helps people manage the risk of price changes over time.
A futures contract is a legally binding agreement to buy or sell a standardized asset on a specific date or during a specific month—secondly, the transaction is facilitated through a “futures exchange.”
An exchange-traded futures contract specifies the quality, quantity, physical delivery time, and location for the given product.
Product can be anything from
an agricultural commodity, like 3000 bushels of corn to be delivered in the month of March,
or a financial asset, such as the U.S. dollar value of 6 pounds in the month of December.
The great thing about futures contracts: the specifications of the contract are IDENTICAL for all participants.
This allows buyers or sellers to easily transfer contract ownership to another party by way of trade.
Because everything of the contract is standardized, the only contract variable is price.
Price is discovered by bidding and offering, AKA quoting, until a match, AKA a trade, occurs.
Futures contracts are products created by regulated exchanges, so the exchange is responsible for standardizing the specifications of each contract.
Every contract will be honored, so buyers don’t have to worry about the other party not holding up their end of the deal. THis makes futures markets safer, more reliable, and easier to enter/exit.
Day 2’s content is posted now!
