Summary

A futures contract is the right to acquire something in the future - for example, to purchase a barrel of oil in 12 months. Futures contracts are actively traded in many commodities including grain, oil, freight, metals, iron ore, interest rates, and exchange rates. Futures contracts can be used to mitigate risk through hedging, which involves taking a countervailing position in the hedge to the underlying physical position. This minimizes your risk because if you lose money on your physical position you gain money on your hedge and vice versa. Hedging is a common mechanism used ...