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Investing and Money Glossary, terms and definitions.

Futures

Futures are contracts to make or accept delivery of a given commodity on a given date at a prearranged price. Futures are traded on all sorts of things, including corn, pork bellies, and Treasury securities. Hardly anyone actually delivers (or accepts) all the bacon implied by a futures contract on pork bellies, though. Investors simply settle up with money and that's that. Basically, futures are a legal way to bet on the direction of a commodity's price, or (in the case of Treasury securities) on the direction of interest rates. Using leverage, you can make a killing in futures; margin rules are much more relaxed than for stocks, and so you can control a vast quantity of corn, for instance, with a very small up-front investment. Of course, this helps make futures extraordinarily risky. Although they are used by large financial institutions and agribusinesses to hedge various risks, for the average investor, they are little more than gambling, with poor odds at that.

 

 

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