Futures contract

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Futures contract

A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option in that an option gives one of the counterparties a right and the other an obligation to buy or sell, while a futures contract is the represents an obligation to both counterparties, one to deliver and the other to accept delivery. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

Futures Contract

An agreement to buy or sell an asset at a certain date at a certain price. That is, Investor A may make a contract with Farmer B in which A agrees to buy a certain number of bushels of B's corn at $15 per bushel. This contract must be honored whether the price of corn goes to $1 or $100 per bushel. Futures contracts can help reduce volatility in certain markets, but they contain the risks inherent to all speculative investing. These contracts may be sold on the secondary market, but the person holding the contract at its end must take delivery of the underlying asset. Futures contract are standard instruments; that is, unlike forward contracts, their provisions are standardized. As such, they may be traded on an exchange.

futures contract

An agreement to take (that is, by the buyer) or make (that is, by the seller) delivery of a specific commodity on a particular date. The commodities and contracts are standardized in order that an active resale market will exist. Futures contracts are available for a variety of items including grains, metals, and foreign currencies. See also Section 1256 contracts.

Futures contract.

Futures contracts, when they trade on regulated futures exchanges, obligate you to buy or sell a specified quantity of the underlying product for a specific price on a specific date.

The underlying product could be a commodity, stock index, security, or currency.

Because all the terms of a listed futures contract are structured by the exchange, you can offset your contract and get out of your obligation by buying or selling an opposing contract before the settlement date.

Futures contracts provide some investors, called hedgers, a measure of protection from price volatility on the open market.

For example, wine manufacturers are protected when a bad crop pushes grape prices up on the spot market if they hold a futures contract to buy the grapes at a lower price. Grape growers are also protected if prices drop dramatically -- if, for example, there's a surplus caused by a bumper crop -- provided they have a contract to sell at a higher price.

Unlike hedgers, speculators use futures contracts to seek profits on price changes. For example, speculators can make (or lose) money, no matter what happens to the grapes, depending on what they paid for the futures contract and what they must pay to offset it.

References in periodicals archive ?
1) Bohm-Bawerk attributes the preference for present over future goods as a tendency brought about by three complementary causes (Herbener, 2011, pp.
It is rather a decision between a present good on the one hand--eating an apple--and a combination of a present good and a future good on the other.
Investing is the act of converting this unconsumed income to a claim to a future good (i.
Mises defended the notion that individuals place a higher value on present than future goods (or satisfaction) (ibid.
Mises followed Menger and Bohm-Bawerk when he stated that 'present goods are valued higher than future goods of the same kind and quantity' (ibid.
The contingent prices of future goods decrease with z' reflecting that in states of nature that z' is low, goods are more scarce and more valuable.
The following proposition establishes the effect of irreversibility on the spread of the contingent prices of future goods ([[psi].
With few exceptions, markets for future goods and services do not exist.
This process can be described on the time market as one where original factors demand present goods (money) and supply future goods (the monetary value of the product), while capitalists supply present goods to original factors and earlier capitalists and demand future goods when they sell the product to later capitalists.
The premium that he earns from the sale of present goods, compared to what he paid for the future goods, is the rate of interest earned on the exchange.
is the agio, or discount on future goods as compared with present goods, i.
If man, other things being equal, did not prefer satisfaction in the present to satisfaction in the future, he would never consume; he would invest all his time and labor in increasing the production of future goods.

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