These differences are what make futures such an appealing investment for traders. Many tend to think that futures are too complicated to understand and consequently, miss many opportunities by not trading them. However, there is a simple but true formula that applies to futures trading as surely as it does to trading in stocks, bonds and real estate.
Money is made if one buy low and sell high .
In the simplest terms, a futures contract is an agreement in which a buyer and a seller agree to consummate a transaction at a predetermined time in the future at a price agreed upon today. The farmer can enter into a contract with a buyer to sell the anticipated 100,000 bushels of corn at a price that represents a profit before the crop is even planted. The cash market, also known as the spot market is the price at which corn is being sold on that day for immediate delivery. With a futures contract, the underlying merchandise is known. For example, you can buy a futures contract on gold, lumber, pork bellies, swiss francs, and many other items.