Futures Trading Cycle

Futures contracts are contracts to buy or sell an asset at a specific time in the future for a specific price. Unlike options, which give the holder the right, but not the obligation to fulfill the trade, futures contracts give the holder the obligation to buy or sell the contract. In other words, the contract must always be filled. There are two types of futures contracts: American and European. American futures contracts may be exercised before or on the delivery date or settlement date. This is the date in the future at which the contract is executed. European futures contracts, however, may only be exercised on the delivery date of the contract. All futures contracts must be traded on a futures exchange.

Each futures contract has two sides: the buy side and the sell side. The individual, who has the right, but not the obligation to BUY the future, enters the contract holding a CALL position. The individual, who has the right, but not the obligation to SELL the future, enters the contract holding a PUT position. When holding a CALL position, the trader makes a profit if the Strike Price (K), the price on the settlement date, is less than the original price of the option (ST). So when ST - K > 0, the buyer makes a profit. When holding a PUT position, the trader makes a profit if the Strike Price (K) is greater than the original price of the option. Therefore, when ST - K < 0 or K - ST > 0, the seller profits.

Gold Futures

Oil Futures