What kind of investment strategy do futures contracts represent?

Futures contracts are fundamentally an agreement between two parties to buy or sell an asset at a predetermined future date and price. This type of contract represents a commitment rather than a mere option. Specifically, the nature of futures contracts creates an obligation for the buyer to purchase, and for the seller to deliver, a specified asset at the agreed price upon the expiration of the contract.

In the context of financial markets, traders and investors utilize futures contracts for various reasons, including hedging against price fluctuations or speculating on price movements of underlying assets. The key element that distinguishes futures contracts is this obligatory component, as they dictate that the contract must be fulfilled at maturity, unlike options which provide the choice but not the obligation to execute.

Other strategies mentioned such as hedging against market downturns or investing in technology stocks represent specific applications or sectors where traders might use futures contracts, but they do not encapsulate the fundamental legal and financial characteristics of futures. Additionally, while it’s true that all investments carry some level of risk, declaring a financial product as having zero risks is misleading, as futures contracts inherently involve significant market risks.