I was bored on my rocking chair yesterday and so I figured I might as well trying and understand some of those annoying and boring trading terms, like 'Futures'.

Futures are contracts that are executed in a very specific manner, at a very specific time in the future.

The whole point of a future contract is to mitigate risk.

You assume certain market conditions will exist at a certain time, and so you contract to buy or sell a certain asset at that time with that price.

There two other reasons why futures exist.

First, arbitrage.

Arbitrage means buying an asset now, over here, at a certain price, and selling it right away, over there, at a higher price.

Imagine being the owner of a pub. You're on the phone with a wholesaler and you buy a can of exotic IPA for $2. You hang up and sell that very same can of exotic IPA to your customer for $4.

Bit of a weird example but you get the gist.

The other reason is speculation.

You're speculating that a certain asset may rise in price more than expected, so you buy it with a futures contract in the hope of being able to secure it cheaper than you would at the true market value when the time comes.