Definition
Futures contracts refer to asset contracts That are bought at agreed prices but delivered and paid for at a later date. Futures contracts allow buyers or sellers to hedge against risk in the market.
Understanding the Term
Futures contracts or futures are binding agreements for traders to buy or sell underlying assets at a later date, at a specific price. In the case of cryptocurrency futures contracts, the underlying asset is a cryptocurrency such as Bitcoin. Futures allow traders to hedge against volatile markets, ensuring that a particular cryptocurrency is purchased or sold at a set price in the future.
There are three main components to a crypto futures contract: expiration data, units per contract, and leverage. Although a crypto futures contract closely tracks the price of the underlying cryptocurrency, its value can vary due to sudden sharp changes in volatility. Features of futures contracts include organized exchanges, standardization, the presence of a clearing house, and trading in margins.
Takeaway
Futures contracts are financial derivatives that allow investors to speculate on the direction of a security, financial instrument, or commodity. Equity futures, index futures, commodity futures, currency futures, and interest rate futures are some of the types of futures contracts.