Legal Definitions - futures market

Definition: A futures market is a type of financial market where people can buy and sell futures contracts. These contracts are agreements to buy or sell a certain asset, such as a commodity or a stock, at a specific price and time in the future. Futures markets are usually formal exchanges where traders can trade these contracts.

Example: Let's say that a farmer wants to sell their crop of wheat, but they won't be able to harvest it for another six months. They could enter into a futures contract with a buyer, agreeing to sell the wheat at a certain price when it's ready. This way, the farmer can lock in a price for their crop and the buyer can secure a supply of wheat. Both parties benefit from the certainty that the futures contract provides.

Another example: A trader might buy a futures contract for a certain stock, hoping that the stock's price will go up in the future. If the stock does increase in value, the trader can sell the futures contract for a profit. However, if the stock's price goes down, the trader will lose money on the futures contract.

These examples illustrate how futures markets allow people to manage risk and uncertainty by agreeing to buy or sell assets at a specific price and time in the future. Futures trading can be complex, but it can also be a useful tool for investors and businesses.