Commodities
A futures contract is a binding agreement between a buyer and a seller to buy an asset at a predetermined price at some point in the future. Commodities are often traded on futures contracts, as are stocks and interest rates. Futures prices may differ from the underlying assets' actual prices, depending on market sentiment toward these assets at any given time.
A futures contract allows an investor to speculate on the direction of a security, commodity, or financial instrument using leverage. Futures contracts are also often used to hedge price risk, which means traders can lock in the price of an asset at a certain point in time.
Types of Futures Contracts
Futures contracts set the price on a wide variety of commodities and assets. They can be used for any type of asset that has a large enough market. The most commonly traded futures include:
Agricultural Futures
Futures contracts are available for agricultural commodities, including grains (such as corn and wheat), fibers (such as cotton and flax), lumber, dairy products (such as milk and cheese), coffee, sugar, livestock (such as hogs and cattle), and even weather events.
Energy Futures
Energy Futures are contracts for energy commodities such as crude oil, natural gas and heating oil.
Metal Commodities
Futures contracts on industrial metals, including gold, steel, and copper: