Futures are an agreement to buy or sell an asset on a specific future date at a specific price.
Once the futures contract has been entered, both parties have to buy and sell at the agreed-upon price, irrespective of what the actual market price is at the contract execution date.
The goal is not necessarily profit maximization. It’s a risk management tool, often used in financial markets to hedge against the risk of changing prices of assets that are bought and sold on a regular basis.
Futures are also used in portfolios to balance out price fluctuations on investments, where the underlying asset is particularly volatile.
These contracts are negotiated and traded on a futures exchange which acts as the intermediary.
