Futures

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]

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.

Costs of Futures Contracts
There are associated costs with futures contracts:
 * 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