What Is A Futures Contract Agreement
The profit or loss of the position on the account fluctuates as the futures contract price changes. If the loss becomes too large, the broker will ask the trader to deposit more money to cover the loss. This is called the edge of maintenance. The Futures Industries Association (FIA) estimates that 6.97 billion futures contracts were traded in 2007, an increase of almost 32% over 2006. In order to reduce the risk of failure, the product is put on the market every day, the difference between the initially agreed price and the actual daily price being reassessed daily. Sometimes it is a margin of variation in which the futures exchange derives money from the margin account of the losing party and moves into the other party`s margin to ensure that the good loss or profit is reflected on a daily basis. If the Margin account falls below a certain value defined by the exchange, a margin call is made and the account holder must replenish the margin account. Underlying assets include physical commodities or other financial instruments. Futures contracts describe the amount of the underlying and are standardized to facilitate trading on a futures exchange. Futures contracts can be used for hedging or trading speculation. Given the volatility of oil prices, the market price at this stage could be very different from the current price. If the oil producer thinks the oil will be higher in a year, they can choose not to ask for a price now.
But if they think $75 is a good price, they could jail a guaranteed selling price by entering into a futures contract. Currency futures contracts are written in pairs. It is a promise to exchange a certain amount of a currency for an amount of another currency. For example, if a trader feels that the value of the U.S. dollar will increase relative to the value of the euro, he or she buys a USD/EUR future corresponding to that valuation. In the financial field, a futures contract (sometimes called futures contracts) is a standardized legal agreement to buy or sell something at a predetermined price at some point in the future between parties who are not known to each other. Traded assets are usually commodities or financial instruments. The predetermined price for which the parties buy and sell the asset is called forward price. The time indicated in the future, i.e.
the date of delivery and payment, is called the delivery date. Because it is an underlying function, a futures contract is a derivative. Futures are always traded on a stock exchange, while forwards can still trade without a prescription or simply be a signed contract between two parties. Therefore, an oil producer must sell its oil. You can use futures contracts to do this. In this way, they can trap a price at which they sell, and then deliver the oil to the buyer when the futures contract expires. Similarly, a producing company may need oil for the production of widgets. As they like to plan ahead and always come to oil, they too can use futures contracts. In this way, they know in advance the price they will pay for the oil (the futures contract price) and they know that they will receive the oil when the contract expires.