Futures Contract

Loading the player...

What is a 'Futures Contract'

A futures contract is a contractual agreement, generally made on the trading floor of a futures exchange, to buy or sell a particular commodity or financial instrument at a pre-determined price in the future. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash.

BREAKING DOWN 'Futures Contract'

The terms "futures contract" and "futures" refer to essentially the same thing. For example, you might hear somebody say they bought "oil futures", which means the same thing as "oil futures contract". If you want to get really specific, you could say that a futures contract refers only to the specific characteristics of the underlying asset, while "futures" is more general and can also refer to the overall market as in: "He's a futures trader."

RELATED TERMS
  1. Futures Exchange

    Traditionally, a term referring to a central marketplace where ...
  2. Currency Futures

    A transferable futures contract that specifies the price at which ...
  3. Contract Unit

    The actual amount of the underlying asset represented by a single ...
  4. Contract Size

    The deliverable quantity of commodities or financial instruments ...
  5. Back Months

    The available futures contracts for a particular commodity that ...
  6. Against Actual

    An order between two traders looking to hedge their positions, ...
Related Articles
  1. Insurance

    Futures Fundamentals

    For those who are new to futures but want a solid understanding of them, this tutorial explains what futures contracts are, how they work and why investors use them.
  2. Options & Futures

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  3. Options & Futures

    Beginner's Guide To Trading Futures: Considerations Prior to Trading Futures

    Prior to trading futures, there are several things to consider. Among these are which brokerage firm you wish to utilize; what types of futures you might want to trade; and what kinds of trades ...
  4. Options & Futures

    Beginner's Guide To Trading Futures: The Basic Structure of the Futures Market

    In this opening section, we will take a look at how the futures market works, how it differs from other markets and how the use of leverage impacts your investing. How Futures WorkYou are probably ...
  5. Options & Futures

    Curious About Stock Index Futures? Read This First

    You've mastered investing in individual stocks...now what? If you like a challenge, consider stock index futures. Just be careful.
  6. Investing Basics

    Investing in Crude Oil Futures: The Risks and Rewards

    Learn about the risks and rewards of trading oil futures contracts. Read about a few strategies to limit the risk in trading oil futures contracts.
  7. Options & Futures

    Are You Ready To Trade Futures?

    If you want to trade futures in the hopes that you'll become rich, you'll have to answer some questions first.
  8. Insurance

    Futures Fundamentals: How The Market Works

    The futures market is a centralized marketplace for buyers and sellers from around the world who meet and enter into futures contracts. Pricing can be based on an open cry system, or bids and ...
  9. Active Trading Fundamentals

    How to Trade Dow Jones Future Contracts

    Learn about the Dow Jones Index futures contracts available and obtain step-by-step instruction on how to trade the stock index futures.
  10. Options & Futures

    How to Use Commodity Futures to Hedge

    Both producers and consumers of commodities can use futures to hedge. We explain, using a few examples, how to achieve commodity hedging with futures.
RELATED FAQS
  1. How can a futures trader exit a position prior to expiration?

    A futures contract is an agreement to buy or sell a commodity at a pre-determined price and quantity at a future date in ... Read Answer >>
  2. How do the investment risks differ between options and futures?

    Learn what differences exist between futures and options contracts and how each can be used to hedge against investment risk ... Read Answer >>
  3. How risky are futures?

    Understand how futures contracts are trading and learn what aspect of futures trading poses potentially greater risk than ... Read Answer >>
  4. How do S&P 500 futures work?

    Learn about the mechanics of S&P 500 futures contracts, a type of stock index future introduced by the Chicago Mercantile ... Read Answer >>
  5. What does the underlying of a derivative refer to?

    Find out more about derivative securities, what an underlying asset is and what the underlying assets refer to in stock options ... Read Answer >>
  6. How can I trade in foreign futures?

    Discover how an American investor can get started in trading foreign futures, including which regulations and restrictions ... Read Answer >>
Hot Definitions
  1. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  2. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  4. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
  5. Basis Point (BPS)

    A unit that is equal to 1/100th of 1%, and is used to denote the change in a financial instrument. The basis point is commonly ...
  6. Sharing Economy

    An economic model in which individuals are able to borrow or rent assets owned by someone else.
Trading Center