A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specified future date. Its value derives from an underlying commodity, currency, or security. In risk management, futures can lock in a price and reduce exposure to unfavorable market movements. section 7.4.1
Locking in a grain price
Farmer Yumi expects a plentiful harvest and fears that oversupply will reduce grain prices. She buys futures to lock in a pre-agreed selling price; if market prices fall, she can still sell at the higher predetermined price. The protection reduces downside risk but does not guarantee a favorable outcome in every market. section 7.4.1
