Futures Market

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Definition of 'Futures Market'

A futures contract is a legal agreement to buy or sell a specific asset at a predetermined price on a specific date in the future. The asset can be anything from stocks to commodities to currencies. Futures contracts are traded on futures exchanges, which are specialized markets for trading futures contracts.

Futures contracts are used by investors to hedge against risk or to speculate on the future price of an asset. Hedging is the practice of taking a position in a futures contract to offset the risk of an existing position in the underlying asset. For example, a farmer who is concerned about the future price of corn may buy a futures contract to lock in a price for the corn that he will sell. This will protect him from losses if the price of corn falls.

Speculation is the practice of taking a position in a futures contract in the hope of making a profit. For example, an investor who believes that the price of oil will rise may buy a futures contract for oil. If the price of oil does rise, the investor will make a profit. However, if the price of oil falls, the investor will lose money.

Futures contracts are a complex financial instrument and should only be traded by experienced investors who understand the risks involved.

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