📈 Futures Contracts
📚 US Capital Private Bank Knowledge Base
📖 Definition
A Futures Contract is a standardized legal agreement to buy or sell a specific asset (such as commodities, currencies, or financial instruments) at a predetermined price on a set future date. Futures are traded on regulated exchanges and are commonly used for hedging risk or speculative purposes.
⚙️ How It Works
Futures contracts obligate the buyer to purchase, and the seller to sell, the underlying asset at the contract’s expiration, regardless of the market price at that time. However, most futures traders close their positions before expiration to avoid physical delivery.
📝 Key Features
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📅 Standardized Terms: Contracts specify quantity, quality, and delivery date.
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💰 Margin Requirements: Traders post initial margin as a performance bond and maintain variation margin based on daily price changes.
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🔄 Mark-to-Market: Daily settlement of gains and losses to ensure margin adequacy.
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🏦 Exchange-Traded: Traded on regulated futures exchanges, ensuring liquidity and transparency.
✅ Benefits
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🔐 Risk Management: Hedgers use futures to lock in prices and reduce exposure to price fluctuations.
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⚡ Leverage: Allows traders to control large positions with relatively small capital.
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💹 Price Discovery: Futures markets reflect collective market expectations for future prices.
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🔄 Liquidity: High trading volumes ensure ease of entering and exiting positions.
⚠️ Risks & Considerations
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📉 Leverage Risk: Amplifies both gains and losses; can lead to margin calls.
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⏳ Expiration Risk: Must close or roll over contracts before expiration to avoid delivery.
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🔍 Market Volatility: Prices can be highly volatile based on supply and demand and external events.
🔎 Related Terms
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📈 Options Contracts: Derivatives that give the right but not the obligation to buy/sell an asset.
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💱 Currency Futures: Futures contracts based on foreign currencies.
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⚙️ Hedging: Using futures to offset potential losses in another investment.
📚 References
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📄 CME Group – Futures Fundamentals
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🌐 Commodity Futures Trading Commission (CFTC) – Basics of Futures Markets
📞 Contact US Capital Private Bank
📧 Email: [email protected]
🌐 Website: https://uscapitalprivatebank.com