Listen to a Business English Dialogue About Futures contracts
Dennis: Hey Emily, do you know what “futures contracts” are in business and finance?
Emily: Yes, I’ve heard of them. Futures contracts are agreements to buy or sell a specific asset at a predetermined price on a future date.
Dennis: That’s right. They’re often used by investors and traders to hedge against price fluctuations or speculate on future price movements.
Emily: Can you give an example of how futures contracts work?
Dennis: Sure, let’s say a farmer wants to lock in the price of their wheat harvest. They can enter into a futures contract to sell a certain amount of wheat at a specified price on a future date.
Emily: So, it’s like a way for the farmer to guarantee a certain price for their crops?
Dennis: Exactly. It helps the farmer manage the risk of price changes and ensures a steady income for their produce.
Emily: Are futures contracts only used for agricultural commodities?
Dennis: No, futures contracts are used for a wide range of assets including commodities like oil and gold, financial instruments like stocks and bonds, and even currencies.
Emily: How are futures contracts different from options contracts?
Dennis: While both futures and options contracts involve agreements to buy or sell assets in the future, options contracts give the holder the right but not the obligation to buy or sell, whereas futures contracts require both parties to fulfill the terms of the agreement.
Emily: Are futures contracts traded on an exchange?
Dennis: Yes, futures contracts are typically traded on regulated exchanges, providing liquidity and transparency for market participants.
Emily: Can anyone trade futures contracts?
Dennis: Yes, but trading futures contracts requires a margin account and involves significant risks, so it’s important for investors to understand the market and their risk tolerance before trading.
Emily: Thanks for explaining, Dennis. Futures contracts seem like a useful tool for managing risk and speculating on price movements.
Dennis: You’re welcome, Emily. They’re an integral part of the financial markets and play a crucial role in price discovery and risk management.