Introduction to Futures
First published: 2014
Brief summary
CME educational material on futures and commodity risk.
Article
A futures contract is a standardised agreement to buy or sell a specified asset at a future date under rules set by an exchange. Commodity futures define the quantity, quality, delivery location and delivery month of the underlying product.
Market participants include commercial firms hedging price exposure and traders accepting risk in pursuit of profit. Most contracts are closed or offset before delivery, although the possibility of delivery helps connect futures prices with physical markets.
Futures prices across delivery months form a forward curve. Contango describes a market in which later contracts are priced above nearer contracts, while backwardation describes the reverse relationship; storage costs, financing, inventories and convenience yield can influence the curve.
Futures trading involves margin, daily settlement and leverage. A price pattern in a continuous futures series can be affected by contract expiration and the method used to roll from one delivery month to another.
Source details and credits
- Source / publisher: CME Group
- Source type: Educational course
- URL type: WWW
- Credits: CME Group
- URL: https://www.cmegroup.com/education/courses/introduction-to-futures.html