The term “futures” refers to the contracted purchase or sale of specified quantities of a commodity. A commodity is by definition the asset in question, though only on rare occasions does the trader plan to take possession of the goods themselves. Instead, traders focus on acquiring potential profits and diversifying their options by buying and selling as market prices suggest.
The futures contract serves to mitigate risk and speculate pricing in a market in which prices can fluctuate dramatically. Because of the regular price changes in commodities, both parties must pay in a specified amount to create a margin. The contractee then uses this margin to settle the price on the contract day by day, which allows the settling of differences as they occur and allows parties to use the spot price on day of delivery to decide the final difference.
Futures and options trading involves risk of loss. Past performance is not indicative of future results. Only risk capital should be used.