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Definition of 'Bond Futures'
A bond future is a contractual obligation for the contract holder to purchase or sell a bond on a specified date at a predetermined price. A bond future can be bought in a futures exchange market and the prices and dates are determined at the time the future is purchased.
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Investopedia explains 'Bond Futures'
Bond contracts are standardized, and are overseen by a regulatory agency that ensures a certain level of equality and consistency. However, this form of derivative can be risky because it involves trading at a future date with only current information. The risk is potentially unlimited, for either the buyer or seller of the bond because the price of the underlying bond may change drastically between the exercise date and the initial agreement.
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For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
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Their inverse correlation with stocks and bonds make these alternative investments worth getting to know.
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There's one simple hurdle in the transition from stock to futures options: learning about product specifications.
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