What is a key characteristic of futures contracts?

Futures contracts are defined by their obligation component, which differentiates them from options. A key characteristic is that when a trader enters into a futures contract, they are obliged to buy or sell a specific asset at a predetermined price at a specified time in the future. This creates a commitment for both parties involved in the contract. Such contracts are used in various markets, including commodities, currencies, and indices, effectively managing risk and allowing for speculation on price movements.

The other options reflect misconceptions about futures contracts. While options provide the right to buy or sell without the obligation, futures contracts do not offer such flexibility — they are binding agreements. Additionally, futures trading is not limited to equities but can encompass a wide range of asset classes, including both hard and soft commodities. Lastly, futures contracts can relate to any tradable asset, not just soft commodities, which include products like coffee and sugar.