Futures Contract for Dummies
noun
What does Futures Contract really mean?
Imagine you really love chocolate, and you want to buy a chocolate bar from your friend. However, right now you don't have the money to buy it. But you know that you'll have some money in your piggy bank next week. So, what can you do? Well, you can make a deal with your friend using a "futures contract!"
Now, a futures contract is an agreement between two people, just like you and your friend. In this agreement, you both agree on a price for that chocolate bar today, but you will actually exchange the money and the chocolate bar in the future - that means, next week. So, even though you don't have the money right now, you can still secure that chocolate bar at the price you agreed upon.
Think of it like a promise or a commitment. You and your friend are promising each other that you will buy and sell the chocolate bar at a certain price on a specific future date. It's like making a reservation for something you want to have later, just like booking a movie ticket in advance.
Now, here's the interesting part. Futures contracts are not just for chocolate bars, they are commonly used in financial markets, like the stock market. People use futures contracts to buy or sell things like stocks, commodities (like gold or oil), or even currencies (like dollars or euros) in the future.
Why would someone use these futures contracts instead of buying or selling things right away? Well, people use futures contracts to manage risk and protect themselves from unexpected changes in prices. They can also use it to speculate and try to make a profit if they think the price of something will go up or down in the future.
So, in a nutshell, a futures contract is an agreement between two people to buy or sell something in the future, at an agreed price. It's like making a promise to exchange something later, just like your promise to get that chocolate bar from your friend next week. It helps people manage risk and make plans for things they want to have or sell in the future. Cool, right?
Revised and Fact checked by John Smith on 2023-10-28 12:49:04
Futures Contract In a sentece
Learn how to use Futures Contract inside a sentece
- A futures contract is an agreement where you can buy or sell something, like corn or oil, at a specific price and date in the future. For example, if you think the price of corn will go up, you can enter into a futures contract to buy corn at a lower price now, and then sell it later when the price is higher.
- Let's say you want to buy a new car next year, but you are worried that the price might increase by then. You can use a futures contract to lock in the current price of the car, so that even if the price goes up next year, you can still buy it at the lower price.
- Imagine you are a farmer who grows wheat. You want to secure a good price for your wheat next month, so you enter into a futures contract with a buyer. This contract guarantees that you will sell your wheat at a specific price, even if the market price of wheat goes down in the meantime.
- Suppose you run a company that uses a lot of electricity. To protect yourself from a sudden increase in electricity prices, you can enter into a futures contract with a power company. This contract ensures that you will pay a fixed price for electricity for a certain period of time, regardless of any price changes in the market.
- Let's say you want to go on a vacation in six months, but you are worried that the exchange rate of the currency you need might become unfavorable. With a futures contract, you can agree to buy the currency now at the current exchange rate, ensuring that you will have enough money for your vacation even if the exchange rate changes.
Futures Contract Hypernyms
Words that are more generic than the original word.
Futures Contract Hyponyms
Words that are more specific than the original word.