First of all, a major function of financial futures is risk transfer. By buying and selling futures contracts, investors can transfer the risk of future price fluctuations to another party willing to bear such risks. For example, a farmer can lock in the selling price of future agricultural products by selling agricultural futures contracts before the planting season begins, thus avoiding the risk of price fluctuation and ensuring the stability of income.
Secondly, financial futures also have the function of price discovery. The price of the futures market is determined by the relationship between market supply and demand, which reflects the market's expectation of future prices. Therefore, futures prices can be used as an important indicator of market prices, providing decision-making reference for market participants. For example, the change of oil futures price can reflect the market's expectation of the future oil supply and demand relationship, thus affecting the investment decision of the oil industry.
Finally, financial futures also have the functions of asset allocation and portfolio optimization. Investors can adjust the risk and return characteristics of portfolio by buying and selling futures contracts, and realize the effective allocation of assets. For example, investors can increase the stock positions in their portfolios by purchasing stock index futures contracts, thus improving the expected returns of their portfolios. At the same time, due to the high liquidity of futures contracts, investors can adjust their investment portfolios at any time to adapt to changes in the market environment.
To sum up, the functions of financial futures are diverse and important, including risk transfer, price discovery, asset allocation and portfolio optimization. These functions make financial futures an indispensable part of modern financial market, and provide effective risk management tools and investment decision-making reference for market participants.