An Introduction to Managed Futures
For all investors, the future holds both potential as well as uncertain risks. The futures markets provide a place for investing in the future value of a wide range of assets and commodities. How does this work? Futures markets aggregate investors who want to buy and sell based on today’s value of the future. Each futures contract must have both a buyer and a seller. The buyer of the futures contract takes a long position in the future value of some underlying asset. The seller of the futures contract takes a short position. If the future value of that underlying asset goes up, the buyer will earn the corresponding gain in value and the seller will lose the same amount. If the future value of the asset goes down, the buyer will incur the corresponding loss in value and the seller will gain the same amount.
Key Characteristics of Futures Contracts:
A futures contract allows an investor to take either a long or short position in the future value of a particular asset, good or commodity (denoted as the underlying). There are several key aspects of futures markets that make them particularly attractive for investing: transparency, liquidity, low counterparty risk, and implied leverage.