Buy Futures Contract Example -

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.

Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels). buy futures contract example

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins. By harvest, corn hits $6

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) Imagine a cereal manufacturer that needs 5,000 bushels

A speculator with no interest in owning actual oil believes prices will rise due to geopolitical tension. What Are Futures? How Futures Contracts Work

Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value.

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .