So how can this be possible, in shares it can be like this

benefiting on long position on shares here someone will buy shares lets say for 100 and expect them to rise to 120, if they rise to 120 he sells them at 120 and he will profit by 20

benefiting on short position, here someone will borrow shares and sell shares lets say for 120 and expect them to depreciate, so if after some time the shares fall to 80 he will buy these shares back and return them from where he borrowed them and hence profiting 20

how can people profit in closing their positions in future contracts


1 Answer 1


The main difference with futures is the only time cash is exchanged is at settlement. Instead of buying stock and hoping it will go up in value, you buy a future, which means that you agree to buy the stock as a certain price at some point in the future. If the underlying stock rises above the futures price, you can buy the stock at that price and immediately sell it for more. When you sell a future, the opposite is true. If the stock goes down in value, you can buy it at the lower market price and immediately sell it for the higher future price.

So from a net payoff standpoint they are very similar. The main difference is when cash is exchanged. With a future no cash is exchanged until the future settles. Many futures are "financially" settled, meaning you don't have to actually purchase the underlying stock or commodity - you just exchange the net difference between the market price and futures price in cash.

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