Contract Example: Buy Futures

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)

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) buy futures contract example

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel . If corn drops to $4

Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value. Every contract specifies the exact quantity and quality

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