Futures traders in Calgary
A futures contract is a type of derivative, meaning it derives its value from an underlying asset. It is an agreement to purchase a financial instrument or physical commodity at a future date for an agreed price. Unlike options, the owner of the futures contract on the delivery date has the obligation to fulfill the contract. Most participants in the futures market do not receive delivery of the underlying asset, but use futures to hedge risk or speculate. Futures can be very risky, and are a major financial instrument and thus, are very liquid.
Initially, there are two players in the futures market, the producer and the buyer. For example, a producer of oil may want to lock in a price so that they can reduce the risk of the oil prices dropping. They are employing a short hedge strategy. The buyer that requires the oil can accept this price, reducing the risk associated with increases in oil prices. They are employing a long hedge strategy. The delivery date, quality, and quantity are all specified on the contract. These contracts are highly standardized, which adds to their liquidity.
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