A market in which contracts are traded for future delivery of commodities (coffee, gold ) , currencies (marks, ponds ) and financial instruments ( Treasury bills, certificates of deposit). The purchase or sale of a futures contract requires that a deposit, called margin, be maintained with a broker. The market is designed in such a way that it is easy to get out of a contract or cancel it.
The vast majority of the participants , the buyers and seller of futures contracts , do not intend to take delivery or deliver , what they bought or sold. Futures contracts are used as an investment vehicles and as a vehicle for hedging positions.
As an example, a manufacturer of gold jewelry who has bought gold on the spot or cash market will sell gold in the futures market until the time when the jewelry is completed and sold in the wholesale or retail market. At that time the manufacturer will buy gold in the futures market. If the price of gold rose in the meantime , he losses on the futures contracts but obtains a higher price for his gold jewelry.
If the price of gold fell down in the meantime . he makes profit on the futures contract but obtain a lower price for his gold jewelry. The sale of a futures contract protected him against fluctuations in the price of gold; however, he never intended to deliver gold under that contract.
The vast majority of the participants , the buyers and seller of futures contracts , do not intend to take delivery or deliver , what they bought or sold. Futures contracts are used as an investment vehicles and as a vehicle for hedging positions.
As an example, a manufacturer of gold jewelry who has bought gold on the spot or cash market will sell gold in the futures market until the time when the jewelry is completed and sold in the wholesale or retail market. At that time the manufacturer will buy gold in the futures market. If the price of gold rose in the meantime , he losses on the futures contracts but obtains a higher price for his gold jewelry.
If the price of gold fell down in the meantime . he makes profit on the futures contract but obtain a lower price for his gold jewelry. The sale of a futures contract protected him against fluctuations in the price of gold; however, he never intended to deliver gold under that contract.
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