Beginner
What Is Futures
Futures is a leveraged contract that is for the underlying asset such as S&P 500 (ES), NASDAQ 100 (NQ), Gold (GC) etc. These futures contracts are a security that is at a pre-determined price to a specific time period.
How Does Futures Work
Ultimately, it works the same way as forex. The only difference is you are trading a different asset class called futures. The difference between these two classes is in the forex market, you are dealing with real time currency rate fluctuations. IN the futures market, you are dealing with projected future prices of a certain asset.
The easiest way to explain why this exists is to think of the price of flour. Flour is always relatively the same price for us as a consumer. In reality, the price of flour can change drastically due to many factors such as the seasons. In most situations, there are 3 parties at play. You have the farmers who farm the flour, a business who sells flour products and a consumer who buys the flour products. Both of the farmers and business want to make a profit from the transaction and the consumer wants to be able to purchase the flour products at an affordable price. In order for the business to make a profit, they have to sell their products for more than what they bought it for. If the cost of flour is always fluctuating, they will constantly have to change the price of their product which would not be enjoyable for the consumer. In order to prevent this, the business can create a contract agreement with the farmer to lock in a certain price until a future date. The farmer likes this idea as well because it provides a hedge against the change in the price for them too so neither side is stuck with only whatever the market price is when they want to buy or sell.
