Chapter 13: Futures Contracts

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“There are two times in a man’s life when he should not speculate;

when he can’t afford it and when he can.” – Mark Twain

Learning Objectives

In this chapter, you will

Be introduced to the concepts and basics of futures contracts
Examine the rationale and uses of future contracts for producers and consumers of commodities
Discuss the uses of future contracts in the financial world
Explore the differences between hedging and speculating with future contracts
Examine the potential enormous adverse consequences that can result from speculating with futures contracts

By the end of this chapter, you should be able to

Describe the rationale and use of futures contracts
Explain the differences between call options and put options
Explain the uses of futures contracts for producers and consumers of commodities
Describe the differences between hedging and speculating with futures contracts
Explain the potential enormous adverse consequences that can result from speculating with futures contracts

So what did you think about options, eh? Ready to start gambling, oops!, I mean, speculating with stock options contracts? Well, Dear Students, as the saying goes, "You ain't seen nothin' yet!" The amount of money that you can lose speculating with futures contracts is staggering. However, unlike options contracts, futures contracts actually do have a very important usage in the global financial system ... for large producers and consumers of commodities such as wheat, oil, and pork bellies. (The last one being used for comedic effect in the 1983 movie Trading Places. Pork bellies, Dear Students, are what they make bacon out of. You know, that tasty stuff that is responsible for colorectal cancer?) For the rest of us, we are best served by staying away from these "Weapons of Mass Financial Destruction." This is a phrase coined by famed investor Warren Buffett.

Presentation file - Study guide

"Wheat" by kewing is licensed under CC BY-NC 2.0
"Oil well pump jacks" by Richard Masoner / Cyclelicious is licensed under CC BY-SA 2.0
"Coin Toss" by ICMA Photos is licensed under CC BY-SA 2.0

13.1: Futures Contracts
So what did you think about options, eh? Ready to start gambling, oops!, I mean, speculating with stock options contracts? Well, Dear Students, as the saying goes, “You ain't seen nothin’ yet!” The amount of money that you can lose speculating with futures contracts is staggering.
13.S: Summary
Congratulations ‒ You Have Finished Chapter 13 ‒ Futures Contracts