framtíðarverðbréf

Framtíðarverðbréf, often translated as futures contracts, are financial agreements between two parties to buy or sell an asset at a predetermined price on a specific future date. This asset can be a commodity like oil or gold, a financial instrument such as currencies or stock market indices, or even interest rates. The price agreed upon is the futures price, and the date is the expiration date.

The primary purpose of framtíðarverðbréf is to allow participants to hedge against price volatility. For example, a farmer expecting to harvest a crop in several months can sell a futures contract to lock in a selling price, protecting them from potential price drops. Conversely, a manufacturer needing a specific commodity can buy a futures contract to secure a purchase price, guarding against price increases.

Futures contracts are traded on organized exchanges, which standardize the terms of the contracts, including quality, quantity, and delivery location. This standardization ensures liquidity and transparency in the market. While hedging is a key function, framtíðarverðbréf are also used by speculators who aim to profit from anticipated price movements. Speculators do not intend to take physical delivery of the underlying asset but rather to buy or sell the contract based on their market outlook.

The value of a futures contract fluctuates with the market price of the underlying asset. When the market price rises above the futures price, the buyer of the contract benefits, and when it falls, the seller benefits. These contracts are typically settled daily through a process called marking to market, where profits and losses are calculated and adjusted in the participants' accounts.