Futures are a class of financial tools known as options. 

     Acting as a binding legal agreement between two parties, a futures contract entitles a party to buy an asset at a later date at a predetermined price. (The parties involved typically do not need to know one another.)

     If corn is $287 per barrel today and somebody thinks that it will be worth more in 6 months time they can go opens futures contract to buy Barrels of corn at $287 in 6 months. So, the 6 months go by and corn is now worth $333 a barrel. The owner of the contract now can literally be buying barrels for $287 and selling them the same instant for $333. However, the inverse law applies, if the barrels of corn drop to $190 the owner of the contract is obligated to buy the barrels at $287. Many people think that its ok because the barrels can just be kept until they rise in price – that is faulty thinking, corn is a perishable good that goes bad over time.



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