Futures Trading
Below is a MRR and PLR article in category Finance -> subcategory Investing.
Futures Trading
Overview
Futures contracts are primarily used for speculation or hedging purposes. Generally, these contracts are settled by neutralizing the original agreement with an opposite one, meaning only the difference between the contract's initial and current price is exchanged. Actual delivery of the goods involved in futures contracts is rare.
Key Concepts
Purpose of Futures Trading
Futures trading is a central aspect of commodity exchanges, designed mainly to facilitate futures contracts. These contracts serve two main purposes: speculation and hedging. The speculative element is so significant that commodity exchanges are often seen as speculative markets.
Speculation
Speculation involves predicting future price trends to make a profit. Traders buy commodities at current prices, expecting to sell them at a higher price later, or vice versa. Although similar to gambling, speculation is based on the analysis of market trends and other price-influencing factors. It remains legitimate as long as it involves informed decisions and adequate resources. Reckless and uninformed speculation, however, can devolve into gambling.
In essence, futures trading offers a platform for informed speculation and strategic hedging, crucial elements of modern commodity exchanges.
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