What are Futures?

Futures, or futures contracts, are legally binding financial agreements. They determine that traders must buy a specified asset or commodity at a predetermined date in the future for a prearranged price. The parties involved in the agreement must track the price movements of an underlying asset.

These financial tools are usually employed by speculators and hedgers. It's used as a method of foreseeing future price movements. It can be a way to gain profit and avoid risks.

Futures are considered as derivative financial instruments because their worth derives from an underlying asset. Investors typically use futures to track the prices of assets and commodities such as natural gas, bonds, wheat, or cryptocurrencies. The expiration date of futures can significantly impact the market results.

In addition, futures contracts may be used to trade a variety of assets, including fiat currencies, equities, indices, government-issued debt instruments, and cryptocurrencies. Futures contracts are also used to trade oil, rare metals, agricultural products, and other assets.

Futures assets can be described using the expiration month. October Bitcoin means that certain Bitcoin (BTC) futures contracts are to expire in October.

While futures contracts can be kept until they expire, many investors and traders choose to purchase and sell them on the open market before they expire.

Futures trading platforms are able to offer leverage functionalities. Traders require just a percentage of the whole value of the contract. A futures trading platform can leverage or lend the remaining value.

The initial amount that a trader must hold is known as the margin. A margin is determined based on the creditworthiness of the trader and the conditions of the trading platform.

Once they approach their expiration date, futures contracts can be either cash-settled or physically settled. Cash-settled contracts mean that the underlying asset is settled by being converted into cash. Physically settled futures contracts require underlying assets to be exchanged during expiry.

Traders are able to track ticks – the smallest price movements of futures contracts within a 24-hour window. Ticks refer to both increases and decreases in price.

Futures traders, like other investing and trading products, frequently utilize technical analysis indicators in conjunction with fundamental research to gain additional insights into the price activity of futures contracts markets.