What Are Futures in Investment?

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Futures are a type of financial contract that obligate the buyer to purchase an asset, or the seller to sell an asset, at a predetermined price at a future date. Futures contracts are standardized so that they can be traded on an exchange.

 

Futures can be used in investment in two ways: as a hedging tool to protect against price movements in the underlying asset, or as a speculative investment to bet on the direction of the market.

 

The benefits of investing in futures include the ability to lock in prices, leverage investments, and diversify portfolios. The risks include the potential for loss and the need for margin account balances.

 

Conclusion

 

Futures are a versatile financial tool that can be used to hedge against risk or to speculate on the direction of markets. While there are some risks associated with investing in futures, there are also potential rewards.

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