Dictionary / Trading and orders
What Are Futures?
A futures contract is a deal to buy or sell something on a future date, at a price agreed today. Futures exist for oil, wheat, gold, currencies and stock indexes.
A simple example
A bakery fears wheat prices will rise. It agrees today to buy wheat in six months at $6 a bushel. A farmer is happy to lock in that price too. If wheat rises to $8, the bakery saved money. If it falls to $5, the farmer did better.
Who uses futures
- Businesses lock in prices to reduce risk, like airlines buying fuel.
- Traders bet on price moves, often with a lot of borrowed money.
- Big investors use them to adjust their holdings quickly.
Stock market futures
Futures on indexes like the S&P 500 trade almost around the clock. That is why news says "futures point to a lower open" before the market opens.
Why futures are risky
You only put down a small part of the value, so small price moves cause big gains or losses. Losses can exceed what you put in.
See it in real companies
Open a company to see what it sells and how it makes money.