Futures

Futures fall under the category of financial derivatives. For two parties to come up and agree to a futures contract, it is important for the owner of the business or the seller to know that once the set date arrives, he will have to provide the item or asset indicated in the contract. The items involved in futures contracts are usually basic commodities such as oil, sugar, or wheat. On the other hand, it is also possible for the trade to involve various types of instruments. Examples of these include foreign currency and bonds.

The creation of futures contracts goes far back into history, during the development of Greek civilization. Such arrangements started out with one party collecting a deposit in exchange for rights to olive presses at a certain point in the future. A boom in the harvest of olives at the predicted time supplied quite a lot of profit to the businessman involved. Trading with futures then developed further as businesspeople found it a more sustainable method of conducting business. After all, it could be too pricey and inconvenient to be carrying around the entire shipment of a certain commodity at once. At the same time, it was quite dangerous as it put travelling merchants at risk for theft and looting. As such, it made more sense to provide buyers with samples and set a delivery date for the items.

At present, when trading with futures, it is important to take a number of factors into consideration. One of these is the type of asset to be delivered, as well as the due date for delivery. For international trade, it is also important to agree on the currency which will be used for the completion of the transaction. Of course, as with all business dealings, and especially in one where a certain amount of leverage is involved, it is prudent to understand the level of risk being undertaken, as well.

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