What are futures markets and how do they work?

What are futures markets and how do they work?

Futures markets are platforms where participants can buy and sell contracts for the future delivery of assets. They help in price discovery and risk management.

Can you explain how futures contracts differ from options?

Sure! Futures contracts obligate the buyer to purchase, and the seller to sell, an asset at a predetermined price on a specific date. Options give the buyer the right, but not the obligation, to buy or sell an asset.

What are some common assets traded in futures markets?

Common assets include commodities like oil, gold, and agricultural products, as well as financial instruments like stock indices and currencies.

How do traders use futures markets for hedging?

Traders use futures to hedge against price fluctuations. For example, a farmer might sell futures contracts to lock in prices for their crops, protecting against potential price drops.

What risks are involved in trading futures?

Risks include market volatility, leverage, and the potential for significant losses. It's important for traders to understand these risks before participating.