Futures
From Bogleheads
Futures (Futures Contract)
- A contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.
- from [Investopedia]
Contents |
Risk
Futures contracts are used to hedge risk. Followers of the Bogleheads investment philosophy should reconsider the use of futures for long-term investing, especially if considering futures with leverage.[1]
Costs of Futures Contracts
There are associated costs with futures contracts:[2]
- Price of the contract
- Commissions
- Futures contracts do not pay dividends
- Opportunity loss of required margin amount (usually calculated by comparing to a 3 month treasure bond)
- There is usually a fee for data from the exchange
- Very low interest on excess margin
Notes
- ↑ What is "Leverage"? on the Bogleheads Forum
- ↑ ibid.
Links
- Future Fundamentals, a tutorial on Investopedia
- Futures Contract on Wikipedia
- Futures Contract, on Investopedia
- Definitions of Future Contract on Google
How to Cite
You can link to this page from the Bogleheads Forum by copying and pasting the following text into your forum posting:
Please see [url=http://www.bogleheads.org/wiki/Futures]Futures[/url] on the [url=http://www.bogleheads.org/wiki/Main_Page]Bogleheads Wiki[/url].
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