What is futures? The solution of this issue lies in the interaction of market participants

What is futures? You can see the definition of this term on any website of financial markets, including Forex. Futures is an obligation that implies the acquisition in any financial markets of any assets at a fixed price. As with any purchase-and-sale transaction, an appropriate agreement is concluded between the buyer and the seller. In this case, the first undertakes to purchase the asset within the agreed period, and the second - to sell the same asset at the price fixed at the time of the transaction. The contract must necessarily specify the types of assets, their size, the deadline for the execution of the transaction and the fixed price. The list of futures goods is quite large, the main ones being futures for grain, metals, timber, steel, cotton, oil and currency.

Sufficiently objectively characterizes the concept of what futures are, its translation from English - "future" - the future. And in fact, in a futures, the conclusion of a contract for the delivery of a certain commodity is carried out in the future. When concluding a contract , a specific delivery date must be specified, after which both the buyer and seller have the right to sell or buy this futures.

Often participants in the financial market that conduct intraday trading use futures for speculation and expect to profit from the expected price, but most often such an obligation can be used to insure trade risks.

What is futures, can be clearly shown on the example of the interaction of farmers and bakery. Before the emergence of this kind of trade, these market participants had to put up with the losses that they were hounded by price fluctuations. But now the situation has changed for the better. So, the plant, having assumptions about the growth of grain prices, can pre-conclude a futures contract and after a while (for example, six months) to pay this grain at an old, profitable price for it. In turn, the farmer, providing for a significant reduction in grain prices, can protect himself from the occurrence of such risks using futures.

One type of such contracts is a currency futures, which provides for the exchange of one currency to another at a previously agreed rate and in a timely manner. Traders who earn on futures contracts use direct quotation of currencies.

Currency futures help to earn only those who can accurately predict the movement of the exchange rate of the base currency. Participants of the financial market need to constantly monitor the change in the base price during the futures period. Thanks to such monitoring, the trader will be able to protect himself from losses in time and get rid of the contract. When profits are reached by futures positions or when losses are reduced with their use, a decision is made to close such contracts.

In order to understand as precisely as possible what futures are, it is necessary to understand also with such a concept as an option. So, it is a contract, according to which the buyer has the right to make a purchase at a previously established price.

What is an option? This is clearly demonstrated by exchange trade, from the point of view of which exchange options with different prices or execution dates can be considered different contracts. There are two types: exchange and over-the-counter. The first - the standard exchange contracts, their circulation is identical to the futures and with the help of the exchange the specification of the contract is determined. During the conclusion of a transaction, participants in trading transactions specify only the value of the premium on the option, and the remaining standards and parameters are set by the exchange.

Over-the-counter options are not standardized, their main difference is that the contracts are concluded on arbitrary terms, stipulated by the participants at the conclusion of transactions. The conclusion procedure is absolutely identical to forward contracts. The main consumers of the over-the-counter market are rather large financial institutions, and the main sellers are investment companies.