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 Dubai Gold and Commodities Exchange (DGCX) and Dalian Commodity Exchange (DCE) today announced the simultaneous launch of their respective polypropylene futures contracts at the Middle East Plastics Seminar in Dubai.
Following Spot Gold Futures Contract in the third quarter will be Plastics Futures Contract, which the regional and global players have been demanding for some time.
Except as otherwise provided in the straddle regulations under IRC Section 1092(b)--which treats certain losses from a straddle as long-term capital losses (see Q 7700)--or in IRC Section 1233 (gains and losses from short sales, special holding period rules), capital gain or loss from the sale, exchange, or termination of a securities futures contract to sell property (i.
The DME's new Brent contract will be cash-settled against the Brent crude futures contract, while its new Oman contract will be cash-settled against the DME's benchmark Oman crude oil futures contract.
Oil producer Oman and the Dubai Mercantile Exchange, a JV between a Dubai Holding unit and NYMEX, are launching a sour crude futures contract.
Still, the price of a futures contract can be distorted as it nears its expiration.
SGX said it embarked on the development of a DRAM futures contract after feedback from chip manufacturers, users and other players in the electronics industry, with respect to their need to manage risks and costs.
Ultimately, the widgets would be sold in the spot market in December, when the widget futures contract would be liquidated.
The futures contract is a firm promise to deliver what at a fixed selling price, Garcia et al (1988).
the Bermuda-based insurance giant, has introduced a futures contract that gives customers the right to buy property insurance at locked-in rates, terms and conditions for as long as three years.
For example, it could buy a standardized electricity futures contract on an organized exchange, entitling it to buy a specified amount of electricity at an agreed-on price on a particular date.
In a frictionless market, arbitrage ensures that the price of a share price index (SPI) futures contract is equal to the accumulated value of the spot price less the deferred value of all dividends paid on the shares comprising the index.