The simple mode of futures is to make a trading contract with the current commodity price, and complete the profit and loss liquidation in the future trading. Because the contract is not settled, the contract premium only accounts for X% of the real value of the contract. So there is capital leverage.
For example:
I signed a sales contract at the current price of 7 1 crude oil, and I bought crude oil of10 million dollars. I paid the contract deposit of100000 dollars in advance. Then a few days later, the crude oil rose to 8 1, and I signed another contract to sell all my original crude oil. Therefore, after the liquidation of both parties, the profit of140,000 USD created by10,000 USD crude oil in the whole contract operation process is my operating profit. Of course, if there is a floating loss and the margin is exhausted (that is, after the first contract is signed, the crude oil falls below 64), it will make me explode.
The former tends to transfer risks, keep the original asset value unchanged, and does not require investment to generate excess returns. The latter tends to take risks, but also requires higher returns. These two aspects complement each other and form a complete futures trading process. Among them, hedging is a hedging transaction in which futures contracts unique to the futures market temporarily replace spot transactions and hold trading positions of the same variety but in the opposite direction in the futures market. Through this trading method, we can compensate each other with the profits and losses of the two markets, and finally avoid the possible losses caused by price fluctuations. Speculation, on the other hand, makes use of the characteristics that futures trading can buy and sell all futures contracts without enough trading margin, and do larger business with less investment. This provides investors with conditions and opportunities for speculative profits. "Small and wide" is the motivation of speculators to conduct futures trading. In this process, speculators may suffer economic losses because of misjudgment, or they may gain huge profits because of successful trading. The complementary relationship between hedging and speculation constitutes a complete futures trading system. All the analysis and elaboration of futures trading theory are centered on these two aspects.