How Do Stock Futures Work?

The easiest way to define stock futures is to take them literally: legally binding agreements to purchase or sell a certain stock at a fixed price on a prearranged date. When utilized to accurately bet on the direction of the market, they might provide a means of making money in addition to guaranteeing a price and a sale.

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Shall we provide an example? By purchasing a stock future, you are securing a certain stock price as well as a predetermined purchase date.

Let's assume that you purchase Tesla (NASDAQ: TSLA) stock futures. You make the decision to buy 100 shares of Tesla stock, which is available for $1,000 a share. Additionally, you determine that you wish to buy these equities in precisely three months. You may lock in that price and that date by entering into a Tesla futures contract. 

When you first engage in your futures contract, its price is $100,000. On the other hand, you will have profited $5,000 on the trade if the price of Tesla stock rises to $1050 before the three months are over. There are several uses for this.

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