<p>A futures exchange is a marketplace where contracts for the future delivery of financial instruments or physical commodities are traded.</p>

<h2>How It Works</h2>
<p>Futures exchanges operate through a process called <strong>standardization</strong>, where contracts for the same asset have identical terms. This ensures liquidity and ease of trading. Here's how it works:</p>
<ul>
  <li>Participants agree to buy or sell an asset at a predetermined price and date.</li>
  <li>Trading is done electronically or through open outcry.</li>
  <li>Both parties are required to post <strong>margin</strong>, a performance bond to ensure the contract is fulfilled.</li>
  <li>At expiration, the contract is settled, and the asset is delivered.</li>
</ul>

<h2>Why It Matters</h2>
<p>Futures exchanges play a crucial role in managing risk and facilitating hedging strategies. For instance, a farmer can lock in the price of their crops by selling futures contracts, protecting against price fluctuations. Similarly, businesses can hedge against currency fluctuations, ensuring their international operations remain profitable. Moreover, futures markets provide insights into market sentiment and expectations, aiding in economic forecasting.</p>