Futures.
In plain English
A futures contract locks in a price today for a purchase or sale that settles later, whether the thing is oil, wheat, gold, or a stock index. Producers and buyers use futures to hedge, fixing a price so a swing does not wreck their plans, while traders use them to bet on where prices are headed. Futures carry built-in leverage, meaning a small deposit controls a large position, which magnifies both gains and losses. They are a professional tool, and most long-term investors never need them.
01Why it matters
Futures sit behind the prices of gas, food, and commodities you pay for, and their built-in leverage makes them far riskier than owning the asset outright.
02The math, step by step
An airline buys oil futures to lock in fuel at 80 dollars a barrel for next year. If oil rises to 100, the airline still effectively pays 80; if it falls to 60, the airline is stuck paying 80.
03What this is NOT
Buying a futures contract is NOT the same as owning the commodity. You hold an agreement about a future price, usually with borrowed exposure, not the barrel of oil itself.
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