Introduction to Futures

1. What are futures?

Futures are a type of “contract trading.” The buyer and seller agree to buy or sell a certain asset at a predetermined price at a specified time in the future.

2. Underlying assets of futures

Almost anything can be traded as futures: gold, crude oil, soybeans, corn, as well as stock indices, interest rates, and even Bitcoin.

3. Characteristics of futures

Margin system: You can buy a large contract without paying the full amount upfront; only a small margin is required to trade. This creates a high leverage effect.

Two-way trading: You can buy long (go long) or sell short (go short).

Delivery at expiration: Contracts have an expiration date. At expiration, physical delivery (taking or delivering the goods) or cash settlement (directly settling profits and losses) may be required. It is important to note that BiyaPay currently does not support physical delivery, only cash settlement. Positions with physical delivery will be forcibly closed starting from T-7 calendar days before the First Notice Day and Last Trading Day. Therefore, users are better suited to use futures contracts to speculate on price differences.

Risks and returns are both amplified: Due to high leverage, profits and losses can occur quickly.

4. Uses of futures

Hedging: Farmers, mining companies, and airlines use futures to lock in future costs or revenues to reduce risk.

Speculation: Traders earn profits by predicting price movements.

Price discovery: Futures markets often reflect supply and demand expectations earlier than spot markets.