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Futures trading

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What is futures trading

Futures Contract is an agreement between two parties to buy or sell a particular commodity, at a specific price on a specific date, as stated in the contract of those parties in that currency futures exchange. An investor can buy a futures contract on gold, silver, copper and many other commodities and will be described in the contract agreement which is determined by the futures exchange on which it trades.

Additionally, the price of a futures transaction is agreed upon the contract between the two parties and will remain untouched over the agreed period was written in the contract. The small amount of money a trader needs to deposit is called the margin. The full price of the commodity will be paid only after the contract will expire.

In terms of the futures price, when an investor buys a futures contract, the price embodies the price which the investor will have to pay when the contract expires, and similarly, when selling a futures contract, the price embodies the price which the investor has to sell the specific commodity when the contract expires.

Features as a venture

In a futures contract, what actually happens is that the two parties confine a purchasing price for a specific commodity. If the price on a specific commodity goes up after the investor agrees on a futures contract, the investor earns profit as the specific commodity has increased in value.