A Futures Market is a monetary exchange where a trader can trade Futures Contracts. A Futures Contract is an officially binding agreement to buy specified quantities of commodities or financial instruments at a specific price with delivery set at an individual time in the future.
It is significant to emphasize the word agreement with Free Stock Trading Tips. The first important difference between the Futures marketplace and, say, the Stock Market is that the Futures Market trades contracts, not shares of stock. You are not trading a share of a company. A Futures contract is an agreement between a trade to trade a precise quantity of a commodity or monetary instrument.
It is reasonably simple to observe how commodities process.
That's all well and good, you say, but that's not actually using a trading structure with trading strategies, that negotiating.
For every Futures Contract, there is a degree of risk. Futures Contracts leverage risk against the value of the underlying asset.
Southwest acquired threat. If the price of crude cut down below the value they paid, they paid more than they had to. Concurrently, they reduced threat because of they consideration that the price of oil would go higher than their contract price. In their case, the leverage was profitable.
Now, look at the oil companies. They reduced risk, believing crude oil prices would fall below the contract price they negotiated with Southwest. They acquired risk because the price of oil rose higher than the contract (thereby losing additional revenue they could have earned). In this case, their leverage was not as good as it might have been.
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