I already grasped the concept of options trading and stocks trading but isnt futures trading just stocks but with bigger leverage and higher risk? You don’t pick in advance whether they’re going up or down and there isn’t an expiration date like options trading
In: Economics
A futures contract is derives its value from an underlying asset. This is usually a commodity, bond, or stock index e.g. S&P500. They are leveraged instruments in a similar way to options but have a linear payoff, where options payoffs are non-linear.
Futures do have an expiry, usually quarterly but sometimes monthly also. For longer term positions, the contracts must be rolled when they expire so that the exposure is maintained.
Futures contracts can be used for long and short exposure, to speculate on price moves or to hedge existing exposures.
Commodity producers may use futures to manage the price risk of selling their product in the future for example.
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