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 ?
The 'roll period' is a period occurring at the end of a quarter during which participants will typically close out open positions in expiring futures contracts and simultaneously create open positions in futures contracts for the next period.
The addition of wheat futures contract would strengthen the agricultural product portfolio of PMEX that earlier included paddy rice and red chilli futures contracts.
The Aluminum Japan Premium (Platts) futures contract is 25 metric tonnes in size and is cash-settled referencing the Platts CIF Japan Spot Premium for Aluminum, which is published daily in real-time service Platts Metals Alert and in Platts Metals Daily.
DGCX INRGBP Mini Futures contract is quoted in British Pounds while DGCX INREUR Mini Futures contract is denominated in Euros.
The new Aluminium futures contracts will provide global aluminium market participants a new tool for managing their exposure to volatile North American prices, while giving them access to physical aluminium at a number of CME Group-approved warehouses across the United States.
The listing of our polypropylene futures contract will fill this gap.
We believe this is the opportune time to launch our plastic futures contract in the region, allowing market participants in the plastics supply chain, including producers, traders, convertors and end-users to hedge their polymer price risk.
As a part of our regular and ongoing contract review process, and working together with a broad cross section of industry participants, we have identified several wheat futures contract modifications to ensure the contract continues to meet customer trading and risk management needs," said Tim Andriesen, managing director for agricultural commodities and alternative investments at CME.
Generally, gain or loss on securities futures contracts (see Q 7693) will be treated under the rules relating to the disposition of the underlying property.
So far in April, 21,133 gold futures contract - valued at $602 million, (Dh2,211 million) and 13,604 WTI crude oil futures contracts - valued at $780 million have been traded on the DGCX, surpassing last month's volumes.
The new swap futures contracts and their commodity codes will be: Argus biodiesel RME Barges Rotterdam (1A); Brent CFD (Platts) vs.
Summary: The Dubai Mercantile Exchange Limited (DME) announced today that more than 500,000 lots of its benchmark DME Oman Crude Oil Futures Contract have traded since the launch of the Middle East's premier energy futures and commodities exchange on 1 June 2007.