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A derivative is a contract where its value is derived from its underlying asset. The underlying asset can be stock, commodity, bond, currency, etc. In this contract, the buyer agrees to buy the asset on a specific date at a determined price. There are mainly three types of derivative instruments— futures, options and forwards.
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To buy and sell futures contracts, one needs to open a trading account with a broker, deposit margin money, select a futures contract, place an order specifying contract details and quantity, monitor market movements, and exit the contract by offsetting the position before the expiration date or settling it in cash. Read the article to know more.
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