Future contract is a type of contract that allows or gives an obligation to the buyer to purchase an asset at some future point at a predefined set price. The assets that are traded over a future contract include commodities, stocks and bonds. Natural commodities in this respect include grain, precious metals, beef, oil, orange juice, and natural gas. The modern commodities in this respect include foreign currencies, emissions credit, bandwidth and certain instruments.
There are two different kinds of future traders including hedgers and speculators. Hedgers are the traders or buyers that don’t seek any kind of profit by trading the commodities but rather they tend to stabilize the revenues of their business and operations. On the other hand speculators are the traders or buyers that are not interested in the ownership of the underlying asset. They are interested in some more profit as a result they place bets on the future price of the certain commodities. For example if you have a consensus on the fact that wheat price is going to fall in the near future you can make a future contract regarding this commodity. However this may happen that due to a terrible season the supply of wheat falls as a result the prices of the wheat rise but you will only get that price for which you have done a future contract.
Future contact are standardize that means they undergo the quality, quantity of the underlying commodity. This is done due to the reason that price means same to everyone in the market.
Other Related Accounting Articles: