<p>Futures are standardized contracts that commit buyers and sellers to trade an asset at a predetermined price and date. They are a type of derivative, derived from the value of an underlying asset such as commodities, currencies, or stocks.</p>

<h2>How It Works</h2>
<p>Futures contracts are traded on exchanges, with both parties agreeing to the terms upfront. The contract specifies the quantity, quality, and delivery date of the underlying asset. The price is determined by supply and demand in the market. Traders can profit from price movements by buying or selling contracts, without necessarily owning the underlying asset.</p>
<p>Key components of a futures contract include:</p>
<ul>
  <li><strong>Underlying asset</strong>: The commodity, currency, or other asset the contract is based on.</li>
  <li><strong>Contract size</strong>: The quantity of the underlying asset covered by the contract.</li>
  <li><strong>Expiration date</strong>: The date when the contract expires and the asset is delivered.</li>
  <li><strong>Price</strong>: The agreed-upon price for the underlying asset at expiration.</li>
</ul>

<h2>Why It Matters</h2>
<p>Futures serve several purposes in the financial world:</p>
<ul>
  <li><strong>Hedging</strong>: Businesses use futures to lock in prices for inputs or outputs, protecting against price volatility.</li>
  <li><strong>Speculation</strong>: Traders bet on price movements, aiming to profit from changes in the market.</li>
  <li><strong>Arbitrage</strong>: Traders take advantage of price discrepancies between related assets.</li>
</ul>
<p>For example, a farmer might sell corn futures to lock in a price, protecting against a drop in the corn market. Meanwhile, a speculator might buy corn futures, betting that the price will rise. If the price does rise, the speculator can sell the futures contract for a profit.</p>