Futures contracts and forward contracts are contracts for future delivery of the underlying asset

Futures contracts and forward contracts are contracts for future delivery of the underlying asset. The underlying asset can be a physical commodity (corn, oil, live cattle, pork bellies, precious metals, and so on) or financial instrument (bonds, currencies, stock indices, mortgage securities, other derivatives, and so on)

Futures and forward contracts are obligations on both the buyer and the seller. Options, we recall, are binding on only the seller. The buyer has the right, but not the obligation, to take a position in the underlying asset. Such a right naturally commands a premium. Options can be used to hedge downside risk, speculation, or arbitrage markets.

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