Debt Management and Leverage

Futures contracts

People who use futures

As shown in the example, this form of leveraging increases risk beyond traditional forms of investing, and accordingly tends to attract the more sophisticated investor.

There are two main types of investors in the futures market.

The first are those that like to trade futures contracts, called futures traders. They are not interested in taking delivery of the commodity or goods they are trading in: they are merely investing to make money prior to the contract expiring.

The other main user of futures contracts is the people or companies that trade the physical commodity or goods.

For example a gold company may want to lock in the price they will get for their gold in a certain currency as they believe the gold price is high at the present time.

This provides pricing certainty.