Buy Futures Contract Example -

Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value.

A futures contract is a legally binding agreement to buy or sell a specific asset—such as a commodity, currency, or financial index—at a predetermined price on a set future date. When you "buy" a futures contract, you enter a , committing to purchase the underlying asset at the expiration date, regardless of the then-current market price. The Mechanics of Buying Futures buy futures contract example

Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging) Buying a futures contract does not require paying

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel . When you "buy" a futures contract, you enter

Profits and losses are calculated and settled in your account at the end of every trading day.

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.