In an increasingly volatile and inflationary economic context, futures trading is once again gaining prominence. Although it seems like a modern and complex instrument, futures trading is a commercial mechanism with thousands of years of history. Civilisations such as the Egyptians and Romans already agreed on prices for goods before the harvest, thus protecting themselves from future fluctuations.

Today, this system remains fully in force and sophisticated, especially in organised futures markets such as the Chicago Mercantile Exchange (CME) or Euronext. In these markets, all kinds of assets can be traded: agricultural commodities (such as wheat, coffee, sugar, or cotton), precious metals (such as gold, silver, or copper), energy sources (such as oil, natural gas or electricity), international currencies (dollar, euro, yen) as well as stock indices and other derivative financial products.

The variety of tradable assets and their standardisation make these markets an essential tool for companies, institutional investors and governments seeking to hedge against price risks, diversify portfolios or secure the supply of strategic resources.

But what exactly is a forward purchase?

A forward purchase is a contract between two parties who agree, in the present, on the price of a product or asset that will be delivered or settled at a future date. Unlike an immediate purchase, physical delivery or payment is not made at the time of signing, but later, according to the agreed schedule.

These types of transactions are carried out in regulated markets, with standardised rules that guarantee legal and financial security for both parties. To protect the agreement, both parties must deposit an initial guarantee (called a “margin”) that serves as a commitment to execute the transaction.

Long positions and short positions

In financial jargon, the terms long position and short position are fundamental to understanding how futures trading works. Taking a long position means committing to buy an asset on a specific future date; conversely, having a short position means committing to sell that asset at that time. These positions do not necessarily involve physical possession of the product—in fact, the contract is often settled before the expiry date through financial compensation.

This mechanism allows both producers — who want to secure the sale price — and industrial buyers or distributors — who want to guarantee a stable purchase price — to protect themselves against market uncertainty.

The futures contract must include all the essential information to be enforceable:

• The asset or product being traded (e.g., 1,000 barrels of crude oil).
• The specific quantity.
• The agreed price (set at the time of signing).
• The expiry or execution date.
• The form of settlement (this may be by physical delivery or by price difference).
• The place and conditions of delivery, in the event of physical exchange of goods.

This system allows conditions to be set well in advance, which is particularly valuable in sectors where prices can change radically in a matter of days.

The advantages of forward purchases

• Stability in times of inflation. In times of inflation or scarcity, forward purchases are a tool for protecting against price volatility. Agricultural companies, manufacturers, distributors, and even investors can secure today the price of a product they will need tomorrow. 
• More reliable planning. Being able to anticipate costs or revenues facilitates financial and logistical planning, reducing the risk of unforeseen events that can affect an entire supply chain.
• Agile access and moderate cost. The daily operation of futures markets ensures high liquidity and a certain ease of trading or unwinding positions. In addition, the initial entry cost (the margin) is usually relatively low compared to the total value of the contract, allowing large volumes to be traded with less capital.

But they also carry risks

Despite the obvious benefits, forward purchases are not a magic formula and carry significant risks that must be carefully considered before making any move:

• Market risk: If the actual price of the asset on the expiry date is lower than the agreed price, the buyer will have to pay more than the current value, incurring a loss. Conversely, if the price rises, and you are the seller, you may be forced to sell below the market price. This can directly impact the profitability of the transaction and, in serious cases, destabilise a company’s budget.
• Binding contractual commitment: Futures contracts cannot be broken without consequences. Once formalised, they are binding, and failure to comply with them can result in significant financial penalties or loss of the deposit. It is therefore essential to carefully assess your ability to comply with the agreed conditions before signing anything.
• Technical complexity: Futures markets are highly specialised environments. Understanding how settlement, leverage, collateral and daily adjustments work requires solid prior training. Trading without knowledge can easily lead to wrong or hasty decisions, especially if they are confused with short-term speculative trades.
• Volatility and leverage: In some cases, futures are used with leverage, i.e. trading with borrowed money or with a small guarantee for a large volume, which can amplify both gains and losses. A small variation in price can have a very large impact on the final result of the trade.

A simple example

Imagine a coffee roasting company that needs large quantities of beans every month. If it fears a price increase due to climatic phenomena or geopolitical instability, it can choose to buy coffee futures. It agrees on the price now, secures the stock, and avoids unpleasant surprises in three months’ time.

This same system is used worldwide with wheat, oil, sugar, gas, gold and even electricity.

A strategy, not a gamble

Forward purchases are much more than a financial tool: they are a risk management strategy with great potential to protect the economic stability of a company or sector. In skilled hands, they make it possible to anticipate adverse scenarios, protect profit margins, secure supply and reduce dependence on market fluctuations.

When prices fluctuate sharply —due to causes such as inflation, geopolitical tensions, logistical disruptions or droughts— this type of operation can mean the difference between surviving or losing control of costs. That is why many large companies use futures as a regular feature of their financial forecasting plans.

However, it should be remembered that they are not a gamble or a speculative game for those who do not master the field. They are a complex strategy that requires knowledge, rigour and discipline. And like any good strategy, they should not be applied blindly. It is necessary to understand them, assess their scope and adapt them to the real needs of each business or operation.

After all, futures markets offer no absolute guarantees, but they do offer something very valuable: the ability to anticipate, manage and mitigate risk in an increasingly unpredictable world.

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