11.1What are futures?
1What is it?
A future is an agreement to buy or sell something at a fixed price on a fixed future date.
2Why does it exist?
Futures let people lock in prices today for a transaction later, either to protect themselves (hedging) or to bet on price direction (speculation).
3Real-life example
A farmer agrees in June to sell rice to a mill at ₹30/kg in October. If market prices fall to ₹25, the farmer is protected; if they rise to ₹35, the mill benefits. Both locked in certainty.
4Quick revision
- Agreement to buy/sell later at a fixed price.
- Used for hedging or speculation.
5Knowledge check
Q1. What is a derivative?Show answer
A contract whose value is derived from an underlying asset.
Q2. In the rice example, who benefits if prices fall?Show answer
The farmer (seller), who locked in ₹30.
Q3. Two uses of futures?Show answer
Hedging and speculation.