Futures trading is a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. Futures contracts are traded on futures exchanges and require a brokerage account that’s approved to trade futures. Futures contracts involve both a buyer and a seller, and unlike options, when a futures contract expires, the buyer is obligated to buy and receive the underlying asset, and the seller of the futures contract is obligated to provide and deliver the underlying asset. Futures trading generally has two uses in investing: hedging (risk management) and speculation.

• Hedging with futures: Futures contracts bought or sold with the intention to receive or deliver the underlying commodity are typically used for hedging purposes by institutional investors or companies, often as a way to help manage the future price risk of that commodity on their operations or investment portfolio. For example, an oil company might want to ensure it gets a specified price on its output for the year and sell oil futures to interested investors. On the other side, a company might hedge the market for commodities they consume. For example, an airline may buy futures for jet fuel.

• Speculation with futures: Individual investors and traders most commonly use futures as a way to speculate on the future price movement of the underlying asset. They seek to profit by expressing their opinion about where the market may be headed for a certain commodity, index, or financial product. Futures traders are traditionally placed in one of two groups: hedgers, who have an interest in the underlying asset and are seeking to hedge out the risk of price changes, and speculators, who seek to make a profit by predicting market moves and opening a derivative contract related to the asset "on paper", while they have no practical use for or intent to actually take or make delivery of the underlying asset.

Futures trading can provide much more leverage than trading stocks, but it also carries more risk. Futures contracts are typically traded on a stock exchange, which sets the standards for each contract. Since the contracts are standardized, they can be freely exchanged between investors, providing the necessary liquidity to make sure speculators dont end up taking physical delivery of a tanker-load of oil.