Buying a futures contract does not require paying the full value of the asset upfront. Instead, you post a , which is a small fraction (typically 3–12%) of the contract's total "notional" value.

By harvest, corn hits $6.00 in the open market. The manufacturer's contract allows them to buy at $5.00, effectively saving $5,000.

If corn drops to $4.00, they are still obligated to pay the contract price of $5.00. While they lose money on the contract, they benefit from lower costs in the physical market, "locking in" their budget. Buying Example: The Individual Trader (Speculation)

The manufacturer buys one corn futures contract (covering 5,000 bushels) at the current futures price of $5.00 per bushel .

Imagine a cereal manufacturer that needs 5,000 bushels of corn in three months. They fear corn prices will rise, which would hurt their profit margins.

A speculator with no interest in owning actual oil believes prices will rise due to geopolitical tension. What Are Futures? How Futures Contracts Work