Futures, also known as futures contracts, are a type of derivative. With futures, a transaction must be made at a predetermined future date and price. <\/p>
It\u2019s kind of like going into a shop and promising to purchase a pint of milk in a week\u2019s time for the price they\u2019ve got on display right now. If everyone agrees to it, you\u2019ve got yourself a futures contract. It\u2019s a popular method of trading, but it can be risky and complex.<\/p>
For example, if you agree to buy a futures contract for a pint of milk for \u00a31 and in a week\u2019s time it costs \u00a31.20, then you can still have it for \u00a31. If it\u2019s 80p, that sucks, you\u2019ve got to buy it for \u00a31. And that\u2019s not a choice \u2013 you have to fulfil your contract<\/strong> and purchase your milk at the agreed price.<\/p> There are loads of different things you can get futures contracts for, such as:<\/p> At a glance, these look like they\u2019re the same thing, but there\u2019s a key difference.<\/p>What\u2019s the difference between options and futures?<\/h3>
Futures<\/th> Options<\/th><\/tr><\/thead> These are an obligation to buy or sell the underlying asset at a set price at expiration.<\/td> These offer the right<\/strong> to buy or sell at a set price on a set date.<\/td><\/tr> Once you\u2019ve entered into a contract, you have to fulfil it at the price and on the date you agreed upon \u2013 much like when you exchange contracts on a house purchase.<\/td> These are kind of like a voucher for a cheaper bar of chocolate. If you arrive at the supermarket to purchase it and the shelf price is a better price than your voucher, you can choose not to use it.<\/td><\/tr><\/tbody><\/table> Pros and cons of futures<\/h3>
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