Understanding the Financial Instrument Called Futures
Futures Homework answers is a financial instrument which is used to trade assets or commodities. It is one of the most frequently used financial instrument for Hedging. In a Futures Homework answers, the buyer purchases an asset like a commodity or financial instrument at a contracted price for a future date. Or the seller sells a similar asset for a predetermined amount on a future date.
To better understand how Futures Assignment answers works take the example of a wheat farmer. He will be concerned with the price of wheat falling in the future due to certain circumstances. So, in order to prepare for such a situation, he may buy wheat futures on the commodity market to hedge it against any potential losses in the spot market. So, he goes long on the futures while short in the spot market. Any gain or loss is offset by the hedging.
Unlike Options, the delivery of the asset at the time of the predetermined date isn’t a necessary part of the Futures Assignment answers. At the end of the contract the asset can be delivered or cash can be exchanged in lieu of that. Thus, it is similar to Options but deviates from the mandatory delivery of goods that may or may not take place in case of a Futures Contract.
There are two major participants when it comes to Future Contracts. There are as follows:
The Hedgers are individuals who use the Futures contract to hedge spot losses against future losses. They engage in such a transaction to protect their interests in the underlying commodities or assets. They are the producer or consumer of such an asset.
Speculators are individuals in the market who are not interested in the commodity or assets involved in the Future Contract. They enter such a contract with the sole intention of making a profit due to the fluctuations of the price of the commodity or asset involved.
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There are many risks associated with Future Markets some of them have been described below:
One of the major risks of Future Markets is Leverage. A trader can be enticed to enter a contract with a high exposure only because of a minimal amount of payment at the start of the contract. This can result in higher losses for the trader.
To be a successful brokerage house, adequate staff with the essential qualifications must be hired. Due to inadequacy of trained professionals, a trader can be forced to bear heavy losses.
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