What is future contract?

What is future contract?

It is the right to buy (or sell) a particular commodity at an agreed upon price at some point in the future. Businesses that will be needing a certain product will buy a contract to buy it at a certain price. It makes the business’s operating costs more predictable.

For example, Southwest Airlines bought aviation fuel futures, enabling them to curtail their costs when the price of that fuel skyrocketed , assuring lower ticket prices for the traveling public.

Conversely, a producer or manufacturer of a certain product (cattle, silver, coffee, etc.) will often SELL a futures contract, assuring a guaranteed price for his product at some point in the future. If the price of that product drops, for example, he is protected from that.

Some people have brokerage accounts that trade commodities. But be forewarned. You coils make $100,000 overnight, but you could LOSE $100,000 overnight just as easily!


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