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 ?
Perhaps more worryingly, the levels of futures trading has not been as high as the initial flurry of excitement may suggest.
Phase 1 will open to the public the DTX live futures trading room featuring the " Archer" trading programme.
CFE is regulated by the Commodity Futures Trading Commission and all trades are cleared by the OCC.
After a two-year trial, the ministry will decide on whether to turn the trading into full-scale futures trading.
Bringing the three additional currencies into futures trading will give investors more flexibility to hedge their risks against volatility in exchange rates.
A large number of studies examine the relationship between futures trading volume and the price volatility in the underlying asset or market.
They worry that restrictions could drive futures trading from the U.
Futures trading in the four commodities has been halted till November 30, Anupam Mishra, director at the Forward Markets Commission, the commodity market regulator, was quoted as saying in the Bloomberg report.
The National Multi-Commodity Exchange (NMCE), Kochi, India, recorded 1,063 metric tons (mt) of physical delivery of rubber in the February series that expired in late February, taking the total physical delivery of the commodity since the beginning of futures trading at the exchange to 30,612 mt.
The Financial Supervisory Commission (FSC) announced a proposal to integrate the dual futures trading systems of Korea Exchange into a single trading system in order to facilitate trading in futures and improve market efficiency.
As we reported in February, the London Metal Exchange, or LME, will introduce the world's first commodities futures trading in plastics on May 27.