Commodity Futures are contracts to buy or sell a commodity at a predetermined price on a specified future date, providing a mechanism for managing price risk in commodity markets.
Commodity futures are standardized legal agreements to buy or sell a particular commodity at a predetermined price at a specified time in the future. These contracts are traded on futures exchanges, and the agreed price is known as the futures price.
These include contracts for goods such as wheat, corn, coffee, and sugar.
Contracts for energy commodities like crude oil, natural gas, and gasoline.
Contracts for precious and industrial metals like gold, silver, copper, and aluminum.
While not traditional commodities, financial futures on interest rates, currencies, and indices also exist.
Commodity futures are regulated by bodies such as the Commodity Futures Trading Commission (CFTC) in the United States.
A wheat farmer, concerned about falling wheat prices, sells wheat futures to lock in the price. If prices fall, the gain from the futures contract offsets the lower market price received for the wheat.
A trader predicts that the price of crude oil will rise. They buy crude oil futures. If the price rises, they sell the futures contract at a higher price for a profit.
While both are derivatives, options give the right, but not the obligation, to buy or sell an asset, whereas futures are obligations to execute the contract terms.