A futures contract has a limited life span. It is also not the cash commodity that is really in play here. Instead, traders use a futures contract for hedging against price fluctuations or to gain some profits from potential variations in the price of commodities. In other words, if you are the buyer of the futures contract, you will agree with the seller to buy the underlying commodity at a set date and at a fixed price. The change in price between the fixed price and the actual price of the underlying commodities, will determine whether you gain profits or suffer losses on your futures contract. The seller and the buyer usually liquidate their respective short and long positions independently before the futures contract expires, and very rarely take delivery of the commodities in play.
Fluctuations in futures contract pricing
Fluctuations in the price of a futures contract are driven by a variety of different and largely unpredictable factors. Interest rates make the greatest power plays. If you are trading in a currency futures contract, the policies and trading activities of the Federal Reserve, U.S. Treasury and foreign central banks, will impact interest...
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