Futures

Futures are financial contracts which obligate the buyer to purchase an asset and the seller to sell an asset at a predetermined price and date. This can be a physical commodity(gold, oil, etc) or a financial instrument(S&P 500 index futures).  Some may require physical delivery of a commodity when the contract expires, others may call for cash settlement instead. Futures offer much higher leverage compared to stocks.

Futures can be used for hedging or speculating purposes. The futures market transfer risk from hedgers to speculators. An airplane company can hedge its future jet fuel costs with futures. The risk of a fluctuation in price is assumed by speculators.

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