Understanding Futures Contract Basics

Very Easy Derivative Strategies Futures And Forwards

John is interested in hedging his exposure to fluctuations in the price of corn. He decides to use a futures contract to lock in a price for corn to be purchased in the future. By entering into this futures contract, John aims to mitigate the risk posed by price volatility.

Which of the following statements about John’s use of the futures contract is correct?

Futures contracts are traded over-the-counter and are customized between parties.

Futures contracts require both parties to post margin and are standardized.

Futures contracts are exclusively for physical delivery of the underlying asset.

Hint

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