Investor’s Manual: What Are Futures?

Investor’s Manual: What Are Futures?

A futures contract is a legally binding agreement to buy or sell a standardized asset at a predetermined price at a specified time in the future. Typically, futures contracts are traded electronically on exchanges such as CME Group, which is the largest futures exchange in the U.S.

Many futures contracts—such as those based on crude oil, gold, soybeans, and more—have origins quite literally at ground level (or below ground). What futures markets do over the short- and long-term can tell investors a lot about what’s going on in the world (how much it will cost to fill your gas tank before your summer road trip, for example).

All futures contracts are “standardized,” and spell out certain specifications, including:

    Quality and quantity of a commodityUnit pricing of the asset and minimum price fluctuation (tick size)Date and geographic location for physical “delivery” of the underlying asset (but actual physical delivery rarely happens, as most contracts are liquidated before the delivery date). TD Ameritrade does not allow for physical delivery of the underlying asset.

For example, a December 2018 corn futures contract traded on CME Group represents 5,000 bushels of the grain (trading in dollars per bushel)to be delivered by a certain date that month. Crude oil futures represent 1,000 barrels of oil, and are quoted in dollars and cents per barrel.

Time to Hit the Market?

TD Ameritrade offers a broad array of futures trading tools and resources. Qualified traders can trade more than 60 futures products virtually 24 hours per day, six days per week.

To further explore the world of futures trading, visit the TD Ameritrade futures trading page.

Also, watch the video below to learn more about futures trading.

Investor’s Manual: What Are Futures?

Investing Basics: Futures

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