Futures contract

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Related to Future Contract: Option contract

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 ?
OAKLAND -- Signed P Michael Palardy to a future contract.
At the global level, the prices of future contracts of crude oil were at the lowest levels within three weeks during Tuesday's trading, amid continued fears of a supplies surplus at the international markets.
The price of the West Texas Intermediate's future contracts for September delivery was up 21 cents to 49.81 pb, so as the Brent crude future contracts which was also up 28 cents to USD 52.64 pb.
The price of the Brent crude's future contracts was up by 87 cents to USD 49.47 per barrel, the same case for the future contracts of the West Texas Intermediate, which went up by 85 cents to USD 47.71 pb.
The price of the Brent Blend future contracts for September were up 77 cents to USD 49.18 pb, while the Texas West Intermediate August future contracts were up to USD 46.74 pb.
The future contracts of the West Texas brand went up by 16 cents to reach USD 49.17 pb.
In the world market, the price of future contracts went up during Friday's trading due to news regarding the decrease in American production of oil, a step that might lead to the recovery of the price.

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