Publication

Derivative financial contracts gain or lose value as the price of some underlying commodity, financial indicator, or other variable changes. In essence, traders promise to buy or sell a commodity in the future at today’s price. The terms of derivative contracts — which include futures contracts, options, and swaps — may be simple or complex, but all involve two parties, one of whom stands to gain if prices rise, the other if they fall. Thus, futures markets are “zero-sum” — any change in the price of the underlying commodity generates profits for some traders, and an equal amount of losses for the rest.