Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging)
Profits and losses are calculated and settled in your account at the end of every trading day. buy futures contract example
The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel . Because you control a large asset with a
By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000. effectively saving $5
A speculator with no interest in owning actual oil believes prices will rise due to geopolitical tension. What Are Futures? How Futures Contracts Work