Futures contract


Also found in: Dictionary, Thesaurus, Legal, Encyclopedia, Wikipedia.
Related to Futures contract: futures market

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 ?
CME Group developed a smaller, E-mini contract one-fifth the size of the standard S&P 500 futures contract and traded exclusively on the exchange's Globex electronic system.
The DGCX Plastic futures contract will trade from 7:00 am to 1:00 pm Dubai Time.
"The wash sale rules apply to any loss from the sale, exchange, or termination of a securities futures contract (other than a dealer securities futures contract) if, within a period beginning 30 days before the date of such sale, exchange, or termination and ending 30 days after such date: (1) stock that is substantially identical to the stock to which the contract relates is sold; (2) a short sale of substantially identical stock is entered into; or (3) another securities futures contract to sell substantially identical stock is entered into." (3a)
"The DGCX Indian rupee futures contract provides market participants with not only the perfect tool to manage their price risk to the currency, but also with arbitrage opportunities against other markets," said P.
Both of these new futures contracts will be traded electronically on DME Direct, the Exchange's electronic trading system.
It hedges its position, therefore, by selling ten electricity futures contracts (FTB M Sep) at 56.25 [euro] per MWh for delivery in September.
The year-old Dubai Gold and Commodities Exchange (DGCX) began trading the Fujairah 380 CST high sulphur fuel oil futures contracts on Oct.
LME's August short-term futures contract for g-p injection-grade homopolymer moved up a bit to 55.1 cents from June's 54.8 cents/lb.
(SGX) announced Monday it will introduce the world's first futures contract based on dynamic random access memory (DRAM) chips in the first quarter of next year.
chooses to hedge a forward sale with a widget futures contract. 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).
Ace Ltd., 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.