A contract is a trading tool that allows investors to trade against asset price changes on an agreed date and price.
Assets can be physical commodities (such as gold, crude oil) or financial instruments (such as stocks, bonds, cryptocurrencies).
They are usually used by traders as a way to hedge other investments or lock in profits when trading in volatile markets.
The buyer and seller use contract transactions to hedge and minimize risks and prevent future price fluctuations. In each contract transaction, it will involve:
1. A Buyer
2. A Seller
3. An Agreed price
When the buyer agrees to purchase the contract from the seller, the two parties will agree on a price and an expiration time (or date). For example, if the buyer buys the contract at a price of $100, the buyer expects the price to increase in the future To US$120, when the price rises to US$130, the buyer will gain US$30. On the other hand, if the price drops to US$95, the buyer will lose US$5.
The same applies to sellers, because price changes will depend on the price agreed by each buyer and seller (this will result in profits for one party and losses for the other party).
With the daily buying and selling of speculators, investors, hedgers and others, the contract market remains active and relatively liquid.