What are futures & how do they work?

Futures—also called futures contracts— allow traders to lock in the price of the underlying asset or commodity. These contracts have expiration dates and set prices that are known upfront. Futures are identified by their expiration month. For example, a December gold futures contract expires in December.

What are index futures?

Index futures are contracts to buy or sell a financial index at a set price today, to be settled at a date in the future. These contracts were originally meant solely for institutional investors but are now open to anyone. Portfolio managers use index futures to hedge their equity positions against a loss in stocks.

How are stock futures prices determined?

Stock futures prices are determined by supply and demand in the marketplace. When more people want to buy a particular futures contract than sell it, the price goes up. When more people want to sell a particular contract than buy it, the price goes down.

What is a stock future?

A Beginner’s Guide to Stock Futures Stock futures are an agreement to buy or sell a specific quantity of a security at a predetermined price on a future date. The contract is based on the value of a particular stock or stock index.