Every contract specifies the exact quantity and quality of the asset (e.g., one crude oil contract covers 1,000 barrels).

If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation)

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)

Profits and losses are calculated and settled in your account at the end of every trading day.

By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.

A futures contract is a legally binding agreement to buy or sell a specific asset—such as a commodity, currency, or financial index—at a predetermined price on a set future date. When you "buy" a futures contract, you enter a , committing to purchase the underlying asset at the expiration date, regardless of the then-current market price. The Mechanics of Buying Futures

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.