What Is the Purpose of a Futures Market?
Written by Peter Taradash
There are many other reasons but here is one that is easy to understand.
You are a jeweler who makes a million wedding rings a year. You have accepted wholesale orders for the next 5 years at $10 per ring. You can make a decent profit on your orders if gold is purchased at the present price of say $1000/oz. You will go bankrupt if you have to pay more than $1200/oz.
To lock in your future price you buy gold futures today at $1000. This is like an option. An additional benefit is that you don’t need to purchase and stockpile all the gold you will need for the next 5 years now.
The same reasoning applies to corn or wheat or sugar futures if you are a baker.
Source : http://petertaradash.com