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 ?
Q: I want to know whether commodity investors are allowed to engage in futures trading in commodity indices.
The authors include three trading activity variables (spot trading volume, futures trading volume and open interest in the augmented conditional return standard deviation (volatility) equation.
Hence, the Board approached the Forward Markets Commission to permit futures trading in rubber.
Key changes under integrated futures trading at the Korea Exchange Current trading system Proposed integrated KTB futures KOSPI futures trading trading trading system Trading 9:00 a.m.- 9:00 a.m.- 9:00 a.m.- hours 3:00 p.m.
Make it a point to stop at the Commodity Futures Trading Commission Website (www .cftc.gov/cftc/cftchome.htm) to study the basics of futures trading and learn a wealth of information about futures and possible fraud schemes.
Subsequently, the Commodity Futures Trading Commission (CFTC) commenced these proceedings alleging that the defendants were deceiving investors and causing them to receive false reports of their account status.(29) The district court granted CFTC's request for a temporary equity receiver(30) over defendants' argument that under the Treasury Amendment, the CFTC had no power to regulate OTC options in foreign currency.(31) When the district court ruled that Dunn's foreign currency option trades were subject to CFTC regulation, Dunn brought an interlocutory appeal to the Second Circuit.(32)
Thirty years later, is futures trading in farm-raised and wild white shrimp an idea whose time has come?
One useful first step in the process of market perestroika was recently taken by the Chicago Mercantile Exchange, which announced plans to institute a computerized futures trading system called "Globex." Globex will allow futures transactions to take place electronically during periods when Chicago's futures trading pits are closed.
The frenzy of people screaming hysterically ateach other in the futures trading pit has its origins in Renaissance Europe, at trade fairs where merchants and customers would meet and agree on purchases of products coming through town later.
Nasdaq Dubai on Wednesday launched futures trading on 12 Saudi companies' shares.
Continuing its winning streak for the third day in a row, mentha oil price advanced by 1.17 per cent to Rs 1,660 per kg in futures trading as speculators engaged in enlarging their positions, tracking a firm trend in spot market on strong demand.