What is a Futures Contract?

A futures contract is a legally binding agreement to deliver or receive a given quantity and quality of a commodity at an agreed price on a specific date or dates in the future.

Where are Futures Contracts Traded?

All Futures are traded on an exchange in a controlled, regulated environment where the underlying facts related to the trades, called the Contract Specifications, are set.

The buyers and sellers of the commodities meet through the exchange to try and determine the price and location where the buying and selling of the product will take place. With the increase in popularity of online trading, more and more futures transactions take place through electronic trading environments, in addition to the more traditional trading floor arena.

Types of Goods Sold

A futures contract can be any physical commodity, such as corn, wheat or meat products. It can also be a financial instrument, such as government and treasury bonds, equity indices and currencies. There are also futures contracts based on energies, such as oil, natural gas and heating oil.

In the next article, we will discuss the mechanics of a futures contract.