Barry is a farmer, who sells his farm produce to Tom, who is a broker for the agriculture industry. Barry and Tom often agree on a price several months before harvest. Which financial market are Tom and Barry a part of?
Futures
market. In this market, traders buy and sell commodities that are due for
delivery at a later date in time. The purpose of having future contracts is
to shield traders from volatility by
allowing them to lock in the purchase/sale of commodity at a specific price.
Investors take on the risk of covering or profiting from the difference in
the event that the future price is above or below what they paid for the
contract.
