What is the Futures Market?

We’ve talked about stocks, mutual funds, ETFs, real estate, and commodities before, but today, we’re going to be talking about a staple of finance that isn’t talked about frequently: the futures market. It’s a complicated topic, so we’ll do our best to explain it to you simply!

Say you saw a cool backpack. The vendor of the backpack says that he’ll sell it to you for $20. Now, you’re looking to make some money. You ask him how much he thinks it’ll be in 1 month. He thinks it will cost $22. You think that it will be worth $25. So, you and him agree that you will buy the bag for $22 in one month. One month later, you buy the bag for $22. You find out that your prediction was correct and that the bag is now worth $25. You sell it for $25 and have now made a profit of $3.

That’s the way a futures contract works. All kinds of futures are traded on the market, including but not limited to commodities, index funds, and currencies. 

Those are the basics of futures trading. It’s a complicated topic, but we hope you understood this lesson! Feel free to reach out with any questions!