Futures contracts are standardized contracts for the delivery of a specified quantity of a commodity or financial instrument on a prearranged future date, at an agreedupon price. They are a bet on the movement in the price of the underlying asset on which they are written, whether it is a commodity or a financial instrument. 

a. Futures contracts are used both to decrease risk, which is called hedging, and to increase risk, which is called speculating.

b. The futures clearing corporation, as the counterparty to all futures contracts, guarantees the performance of both the buyer and the seller. 

c. Participants in the futures market must establish a margin account with the clearing corporation and make a deposit that ensures they will meet their obligations. 

d. Futures prices are marked to market daily, as if the contracts were sold and repurchased every day. 

e. Because no payment is made when a futures contract is initiated, the transaction allows an investor to create a large amount of leverage at a very low cost. 

f. The prices of futures contracts are determined by arbitrage within the market for immediate delivery of the underlying asset.

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The detailed answer for the above question is provided below A a Futures contracts are used both to reduce risk which is referred to as hedging and to increase risk which is referred to as speculating ... View the full answer