Final answer:
A seller can profit while a buyer loses money on futures contracts through accurate price prediction and typically by trading with leverage which amplifies potential outcomes. Sellers predict falling prices to sell high in advance, while buyers risk purchasing above market value if their predictions fail.
Step-by-step explanation:
A seller can make money and a buyer can lose money on some futures contracts by accurately predicting price movements. This happens because futures are a type of derivative that obligates the buyer to purchase, or the seller to sell, an asset at a predetermined future date and price. If the seller predicts that the price of the underlying asset will fall, they can enter a contract to sell at a higher price than the market price when the contract matures. Conversely, if the buyer incorrectly predicts the price movement and the price falls below the contract price, they must buy the asset at a higher price, resulting in a loss. Both parties are attempting to forecast future market conditions to secure a favorable position. However, futures trading often involves trading with leverage, taking betting on positions much larger than the capital they have, which can amplify profits but also exacerbate losses if the market moves against them.