Futures Market Quotex Login: What are they and why do people want to use them?
Wikipedia answers: A Futures Market, is a financial market where traders can exchange Futures Contracts. So what exactly is Futures Contracts? Futures Contracts are legally binding agreements to buy certain quantities of financial instruments or commodities at a given price, with delivery at an agreed-upon future date.
Contract must be stressed. Futures Markets trade contracts and not stocks. This is the first difference that makes the Futures Market different from, say, Stock Markets. This isn’t a transaction where you buy and sell a piece (or share) of the company. Futures Contracts is an agreement made between investors for the trading of specific quantities of commodities or financial instruments, like gallons of gasoline or tons of grain.
How commodities function is easy to grasp. It is easy to understand how commodities work.
Southwest Airlines earned money while the other airlines lost it when the fuel price was at $140 per barrel. Years earlier, when oil was cheaper, Southwest Airlines had signed Futures Contracts. But they didn’t take delivery of the contracts until 2007. Futures Contracts will be purchased for 2011/2012 when oil becomes affordable again.
But that is not really trading, it’s just negotiating.
There is some risk in every Futures Contract. Futures Contracts allow you to reduce your risk through the underlying value.
Southwest acquired the risk. The company paid more than it had to if they were unable to get the contract price for crude. Simultaneously they decreased risk, because they believed the price of crude oil would increase above their contract. Their leverage proved profitable.
Consider the oil companies. As they thought crude oil price would be below contract price, Southwest reduced the risk. Oil prices rose more than their contract price, resulting in a loss of revenue. This was because their leverage wasn’t as high as it could have possibly been.