Buy Futures Contract Example Access

Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels).

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins. buy futures contract example

Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging) Every contract specifies the exact quantity and quality

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel . Because you control a large asset with a

If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation)

By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.