Buy Futures | Contract Example

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.

By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.

If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation) buy futures contract example

A speculator with no interest in owning actual oil believes prices will rise due to geopolitical tension. What Are Futures? How Futures Contracts Work

Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels). Imagine a cereal manufacturer that needs 5,000 bushels

A futures contract is a legally binding agreement to buy or sell a specific asset—such as a commodity, currency, or financial index—at a predetermined price on a set future date. When you "buy" a futures contract, you enter a , committing to purchase the underlying asset at the expiration date, regardless of the then-current market price. The Mechanics of Buying Futures

Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging) The manufacturer's contract allows them to buy at $5

Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value.