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Definition of 'Futures'

Futures are financially instruments and commodities traded on an exchange. The term Future is typically used when it is exchange traded and the term Forward Contract used when the contract is between two or more private parties, also know as Over The Counter (OTC).

The seller of a future is required to deliver the underlying commodity or instrument on the date that the future expires. Typically, most futures are closed out before expiration date and some futures (such as Equity Index Futures and most financial futures) are cash settled.

Futures (like Options) are a geared investment. For a small down payment known as a margin they allow you to control a much larger investment. This is a great attraction for traders because it allows them to make large percentage profits on their capital. It also exposes them to large risks and losses if the investments do not go well.

Futures (like Options are a Leveraged Investment

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