What are the main characteristics of futures?

The main characteristics of futures are as follows:

1. Standardized Contracts: Futures contracts are standardized agreements that specify the quantity, quality, and delivery date of the underlying asset. This standardization ensures uniformity and facilitates trading on organized exchanges.

2. Exchange-Traded: Futures contracts are traded on regulated exchanges, such as the Chicago Mercantile Exchange (CME) or the New York Mercantile Exchange (NYMEX). This provides a centralized marketplace for buyers and sellers to trade futures contracts.

3. Margin Requirements: Futures trading involves the use of margin, which is a small percentage of the contract value that traders must deposit as collateral. This allows traders to control a larger position with a smaller upfront investment.

4. Leverage: Futures contracts offer leverage, allowing traders to control a larger position than their initial investment. This amplifies both potential profits and losses.

5. Clearinghouse: Futures contracts are cleared through a clearinghouse, which acts as a counterparty to both the buyer and seller. The clearinghouse ensures the financial integrity of the market by guaranteeing the performance of the contracts.

6. Delivery or Cash Settlement: Futures contracts can be settled through physical delivery of the underlying asset or cash settlement. Most futures contracts are cash-settled, where the difference between the contract price and the market price at expiration is settled in cash.

7. Price Transparency: Futures markets provide real-time price information, allowing participants to see the current market prices and trading volumes. This transparency enhances market efficiency and facilitates fair pricing.

8. Hedging and Speculation: Futures contracts are used for both hedging and speculation purposes. Hedgers use futures to protect against price fluctuations in the underlying asset, while speculators aim to profit from price movements.

9. Short and Long Positions: Futures contracts allow traders to take both long (buy) and short (sell) positions. This flexibility enables traders to profit from both rising and falling markets.

10. Limited Contract Duration: Futures contracts have a specific expiration date, after which they cease to exist. Traders can choose to close their positions before expiration or roll them over to a new contract if they wish to maintain their exposure.