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What is a futures contract?

A futures contract is a legally binding agreement to buy or sell a standardized asset on a specific date or during a specific month. Typically, futures contracts are traded electronically on exchanges such as the CME Group, the largest futures exchange in the United States. How do futures contracts work?

Who is obligated to deliver a futures contract?

Buyers of futures contracts are obligated to take delivery of the underlying asset when the contract expires, and sellers are obligated to deliver. Some contracts require the delivery of a physical asset, while others are cash-settled. Futures track a wide range of commodities and financial assets.

How are futures traded?

Futures contracts are traded on an exchange like the Chicago Mercantile Exchange (CME) 1, and investors are required to have an account approved by a brokerage firm like TradeStation in order to trade futures. The Commodity Futures Trading Commission (CFTC), a federal agency, regulates the trading of futures contracts.

What happens if a futures contract expires?

The buyer of a futures contract, on the other hand, is obligated to take possession of the underlying commodity (or the financial equivalent) at the time of expiration and not any time before. The buyer of a futures contract can sell their position at any time before expiration and be free of their obligation.

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