What Is the Futures Market?

What Is the Futures Market?

By Charles Joseph | Editor, Financial Affairs
Reviewed by Corey Michael | Senior Financial Analyst

The Futures Market is a centralized marketplace for buyers and sellers worldwide, in which they enter into futures contracts. These contracts stipulate the price for buying or selling a specific asset at a future date regardless of market conditions. The assets involved generally include commodities, stocks, and bonds. The Futures Market serves as a vital financial hub for hedging risks against price fluctuations, driving the price discovery process and offering speculative trading opportunities.

Related Questions

1. What is a futures contract?

A futures contract is a legal agreement to buy or sell an asset at a predetermined price at a specified time in the future. These contracts are standardized for quantity and quality of the asset to facilitate trading on a futures exchange.

2. What are the different types of Futures Market?

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There are two types of Futures Market – commodity futures market, where commodities like gold, oil, agricultural products are traded, and financial futures market, where assets like currencies, treasury bonds, and stocks are traded.

3. What is the role of the Futures Market in the economy?

The Futures Market plays a significant role in the global economy. It provides a mechanism for price discovery, makes hedging possible which mitigates risk associated with price volatility, and also provides opportunities for speculative trading.

4. What are some of the risks involved in the Futures Market?

Risks in the Futures Market range from price risk, where unexpected price changes can lead to significant losses, to liquidity risk, where a contract may not be able to be sold quickly enough to prevent a loss. There’s also the risk of default where one party may fail to honor its contractual obligations.

5. Can anyone trade in the Futures Market?

Yes, anyone with a funded futures brokerage account can potentially trade in the Futures Market. However, it’s essential to understand the complexities and risks involved before venturing into futures trading. It’s often recommended to seek professional advice or training in view of the potential for substantial financial losses.