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Reviewed by Jul 30, 2021| Updated on
Futures are financial contracts that restrain the parties to transact an asset at a predetermined future date and preset price. Here, the buyer must purchase or the seller must sell the underlying asset at the set price, regardless of the current market price at the expiration date.
Commodities, such as food, energy, and metals, are traded similar to stocks and shares. Individuals and companies invest in commodities to diversify a portfolio beyond traditional securities. Most commodity trading is done through futures. There are financial futures on stocks, currencies, metals, and interest rates.
An individual trader will buy and sell via brokerage or an agent. On the other hand, institutional traders are mostly employed by investment companies. Stock traders provide liquidity to the markets, and employ several methods and styles for defining their strategies. Stock trading has two main types - individual stock trading and institutional stock trading.
Stock traders are different from stock investors. Stock traders trade equity securities, whereas stock investors utilize their own funds to purchase securities. The stock investor's primary goal is to produce interest income or to profit from the increase in value, also termed as capital gains.
India's $2.1 trillion stock market has been powering to new highs as foreign investors pile into country's shares. Foreigners purchased a net $5 billion, give or take, of the country's shares so far the third quarter of FY20, while domestic investors have remained buyers of equity funds. Stocks are simply acting as a leading indicator for the economy.
Some commodities futures contracts provide you with the option to choose. Buying options on futures contracts is similar to placing a deposit on something rather than actually purchasing it right away.
You have the right to make the deal but are not obligated to complete the transaction. Therefore, if the price of the contract doesn't move in the direction you anticipated, you can limit your loss to the cost of the option.