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 ?
We consider the pricing of SPI futures contracts under the two scenarios regarding the costs of short selling the index portfolio, estimating the arbitrage bounds to determine if they are consistent with the observed futures price.
To illustrate, consider two situations involving a grain company's hedge of its wheat inventory through the sale of wheat futures contracts.
The value of the Standard & Poors stock index futures contract, for example, rises and falls according to the price movement of 500 different stocks.
The investment objective of the Teucrium WTI Crude Oil Fund (NYSE: CRUD) will be to have the daily changes in percentage terms of its shares' Net Asset Value ("NAV") reflect the daily changes in percentage terms of a weighted average of the closing settlement prices for futures contracts for WTI crude oil, also known as Texas Light Sweet crude oil ("Oil Futures Contracts") traded on the NYMEX, specifically, (1) the nearest to spot June or December Oil Futures Contract, weighted 35%; (2) the June or December Oil Futures Contract following the aforementioned (1), weighted 30%; and (3) the next December Oil Futures Contract that immediately follows the aforementioned (2),weighted 35%; less the Fund's expenses.
The Euro-Swap Futures provide our participants with a cost-effective product which tracks the risk of the underlying with the margin efficiency of a standardized futures contract and makes it possible to offset risk with our liquid benchmark government bond futures.
The introduction of this new futures contract is the result of both these favourable market conditions and demand from market participants.
Why not try trading rolling daily and futures contracts on our spread betting demo account.
As the only exchange-traded rupee futures contract outside of India, we have seen increased interest from market participants in the Indian rupee-dollar futures contract in recent months, with volume up 49 per cent compared with the same period last year," Morris said.
He declined to give the exact schedule for the launch of the futures contract on the Dubai Gold and Commodities Exchange, in which DMCC holds a majority stake.
The Nova source says only 1% of all commodities futures contracts result in delivery of product.
Health insurance futures contracts, a powerful new hedging tool soon to be released by the Chicago Board of Trade, may help companies freeze previously uncontrollable health-care costs.
More recently, however, margin levels have been reduced on futures contracts and in some instances the level of protection provided as of June 1989 is less than in the cash markets.