Futures Frontier: Futures Contracts Explained for Teens

Futures Frontier is the Wealthonauts planet for older explorers, ages 13 and up. Nova gives futures contracts explained for teens with real-world examples, like a farmer protecting the price of a wheat crop. Because futures are risky, every explorer completes a risk lesson before the simulator unlocks.

Futures contracts explained for teens

A futures contract is a standardized agreement to buy or sell a set quantity of an asset at a price agreed today, for settlement on a future date. The asset is called the underlying asset. It might be a crop such as corn, a metal such as gold, an energy product such as oil or even a financial index. Futures trade on regulated exchanges, and in the United States the Commodity Futures Trading Commission oversees them.

Hedgers and speculators

Hedgers use futures to reduce risk. For example, a farmer can sell wheat futures before harvest to lock in a price, while a bakery can buy them to lock in its cost. Speculators, on the other hand, do not need the wheat. They try to profit from price changes and accept the risk of losing money. Both groups help markets work.

Margin and leverage

To open a futures position, a trader deposits margin, which is a good-faith deposit and not a down payment. Because a small deposit controls a large contract, futures are leveraged. As a result, a small price move can create a large gain or a large loss. Gains and losses are settled every day, and a trader may receive a margin call if losses grow.

Risk management first

Smart risk management means knowing the most you could lose before you trade, using position limits and remembering that leverage works in both directions. Real futures accounts are for adults only. Wealthonauts never connects to real accounts or real money.

Unlock the simulator

Complete the lesson Futures, Margin and Leverage, then try the Futures Frontier simulator as a farmer or a speculator.