financial-future

Financial Futures: Definition, Pros/Cons and Examples

A financial future is a financial derivative, characterized by being an agreement whereby two investors agree today to buy or sell an asset (called the underlying asset ) in the future. In the operation the basic conditions of the operation are established, among them fundamentally the price.

An investor can be in two positions when contracting a financial future. It is said to open a long position when buying futures. On the other hand, it is said to open a short position when selling futures. Futures are characterized in that both buyer and seller have obligations.

Obligations of a financial futures

The obligations of each of the parties to a futures contract are:

  • Buyer: You have the obligation to buy the underlying asset paying its price on the established date.
  • Seller: You have the obligation to sell the underlying asset receiving its price on the established date.

This obligation is only required at the expiration of the contract but it should be noted that it is not necessary to expire. This is because a position can be closed by the opposite operation. Sell ​​in the case of a long position and buy in the case of a short position. As a result we will obtain the corresponding benefits or losses.