Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.
The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel . buy futures contract example
Because you control a large asset with a small deposit, small price changes can lead to significant gains or losses that may exceed your initial investment. Buying Example: The Cereal Manufacturer (Hedging) Imagine a cereal manufacturer that needs 5,000 bushels
Profits and losses are calculated and settled in your account at the end of every trading day. buy futures contract example