1: future definition
2: how the future works
3: futures vs option
4: example for future
Opening information:
Futures means some time ahead from the current time, future doesn’t only represent the long time but even next seconds.
Using the future as a reason and made a agreement of contract between two people to trade one matter or element.
So now let’s have a look what is a future, how the futures works using the commodities, and what is the difference between the future and option, finally one example about the future.
1: future definition
Crops are the raw material of commodities products, crops are the ones harvested every 75 to 140 days.
Crops didn’t bring any big or small profits, instead, the crop price of profits is always based and depends on the demand of certain crops in the specific situation at a particular place.
If the crops demands among the public, then the crops price would rise or if the crops supply is very high, it’s got cheap among the people’s.
Therefore Christian do a crops business for a long times, he actually harvest the crops every 95 days, but each crops business owner do the different harvesting on a different day.
When comes to Christian crops business, he might find using the business experience that price value of the crops going to go down for the next 4 years because of long recession.
This makes the Christian nerves about his future business profits, so Christian made a contract with a big whole sales crops buyer to purchase the crops at pre-determined price at the future.
Which means if the price of the crops increase over time instead of decrease, Christian had to provide the crops to his buyer at same strike price at the end date of the contract, even if the Christian run the business with loss.
After the contract agreement, within one years, the crops price got decreased very low, that other crops business owners most of them got into heavy losses because of strong recession.
But the Christian crops still ran in the profits because he had a contract agreement with lots of whole sellers to sell the crops at the pre-determined strike price in later years, which made him totally save from the recession disaster.
Here the contact agreement to purchase and trade the crops on the later date is called as a futures in a derivatives. So now let’s dive into how the futures work in derivatives.
2: how the future works
On the above definition, we seen the crops as a futures, but the crops are not a futures they are commodities, using the commodities people’s made a contract between the two people’s to trade on future date.
This future contract agreement to purchase certain commodities at the future date is called as future in derivatives.
The futures are not only useful for the person who issued the future contract but also very useful for the Investors who purchased the future contract.
When one Investors predict specific commodities had high or huge growth rate over time in future, they had bought the future contract now, to purchase the same commodities at future date but with today price.
This makes the future traders very profitable and provided varieties of advantage over time by speculating on the different commodities.
But that’s doesn’t mean futures are risk less, it’s contain heavy risk because of high volatility and fluctuations on the price of trading activities in the futures market.
So be make sure to your prediction are most likely contract when trade with futures using a commodities.
Most people’s confuse about the options and futures, so let’s dive into the key difference in it.
3: futures vs option
The difference between the future and option are, future represents the contract between the two people to trade on the future. And option also shows that contract between the two peoples to trade using the futures.
So the key difference between the option and future would be future contracts are required to purchase a certain security at a future date,
but the options contracts are not must required to purchase certain securities, instead, you might receive the profits above or below the strike price based on the option you chosen.
To make you more clear about the future, let’s start to know about Future one example.
4: example for future
Say the company Z is a natural gas company, Which wrote future contract on based on commodities which is natural gas. To bought the natural gas at a future at the determine strike price, you purchased the natural gas at 16 dollars.
After the 10 months, you purchased the natural gas at 16 dollars with a current market price of 25 dollars. Because 16 dollars became a strike price for a certain industry.
Market rule: #100158
Futures came under the market rule because futures are part of securities in the public market which are traded under futures investors, it is unavoidable for futures traders and they are one which are completely responsible for any action they take, they couldn’t raise complaints at any cost.
If your investor and not compliance or align investing with based on market rules please learn about how to regulate your investments under your control with use of Rule investing.