What is a futures contract?

In finance, a futures contract (sometimes called futures) is a standardized legal contract to buy or sell something at a predetermined price for delivery at a specified time in the future, between parties not yet known to each other. The asset transacted is usually a commodity or financial instrument.

Is a futures contract a derivative?

The asset transacted is usually a commodity or financial instrument. The predetermined price of the contract is known as the forward price. The specified time in the future when delivery and payment occur is known as the delivery date. Because it derives its value from the value of the underlying asset, a futures contract is a derivative .

What are index futures contracts?

In this article, we explain the basics of index futures contracts and what they represent. An index futures contract is a legally binding agreement between a buyer and a seller, and it tracks the prices of stocks in the underlying index. It allows traders to buy or sell a contract on a financial index and settle it at a future date.

What types of people trade futures contracts?

There are two types of people who trade (buy or sell) futures contracts: hedgers and speculators. These are businesses or individuals that use futures contracts for protection against volatile price movements in the underlying commodity. A good example to illustrate hedging would be a corn farmer and a corn canner.