There are several reasons businesses and investors use futures contracts:
Hedging Risk: Companies use futures to hedge against adverse price movements in commodities or currencies. For example, an airline might use futures contracts to lock in the price of jet fuel. Speculation: Traders use futures contracts to profit from price movements. By taking a long or short position, speculators can bet on the direction of the market. Price Discovery: Futures markets provide a transparent mechanism for price discovery, reflecting the collective market sentiment about the future value of an asset. Leverage: Futures contracts allow traders to gain significant exposure to an asset with a relatively small initial investment, known as the margin.