The future can be a fickle thing to predict. One occurrence can completely changethe expected and have you going back to the drawing board trying to figure outthe next course of action. Thus stating whether futures trading will rule theworld someday may be difficult, what we can say, however, is that its futurelooks promising. Let’s take a step back at take a look at exactly what futurestrading is and how it works.
Futures trading was developed as a way for sellers to lock in on prices. Due to constantly fluctuating markets, hedgers in a bid to provide stability andpredictability to their business began offering future contracts. A futurescontract is a legal agreement between two parties agreeing to buy or sell anunderlying asset at a set price at a stated time in the future. Once a contracthas expired, the buyer or seller is under obligation to buy or sell theunderlying asset at the predetermined price regardless of the current marketprice at the time of expiration.
Now while hedgers mostly use the futures market to provide stability to their businesses, there is a group of futures traders known as speculators who are infor the profit they could make through the movement of the futures market. Thefact is the futures market is a highly liquid, high risk, low margin marketwith a lot of potential for great profits both currently and in the future.