What are Futures?
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Futures are financial derivatives that function as contracts, where you agree to trade an asset at a predetermined price on a future date. Some futures contracts result in ownership of the underlying asset, while others are settled in cash.
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These contracts set the terms of the trade in advance, originally designed for producers and consumers to lock in prices and protect profits against price fluctuations. By fixing a price early, participants could avoid the risks associated with volatile market conditions.
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Today, traders widely use futures because the contract’s value fluctuates based on how favorable the agreed-upon trade is compared to the current market price. Futures are often leveraged, allowing traders to control larger positions with less capital.
