A futures contract is an agreement between two parties.[1] The buyer pays the seller today for the promise of the commodity at a future date.[2] Futures contracts are traded in futures exchanges.[3] The commodities can be things such as livestock, agriculture produce, metals, energy, and financial products.[4] Trading futures can be profitable.[4] But it is also complex and very risky.[5] Instead of gaining a profit, an investor can lose the money invested.[4] They could be required to pay more than they invested.[5]
Margin is the amount of money investors must give to the exchange, in order for contracts to be ensured against counterparty risk.[2] Initial margin ranges around 10% of the total value of the contract.[6] Margin rates can be lowered for hedgers since the contracts are covered by assets.