What is an example of a futures contract?

The underlying asset of a futures contract is commonly either a commodity, stock, bond, or currency. Since futures contracts correspond with an underlying asset, they are an example of derivatives . Most futures contracts allow for a cash settlement instead of the physical delivery of the asset.

What are futures & how do they work?

Futures are contracts where the buyer agrees to buy a commodity or financial instrument at a particular quantity, price, and date at a later point in time — and the seller agrees to sell or deliver the asset. Futures are derivatives, which means that their value is derived from an underlying asset.

How long does a futures contract last?

Depending on the type of asset, delivery can be anywhere from a month to a few years – all of this information would be found in the exchange’s contract specifications. Normally, you can trade on a futures contract until a few days before the specific expiry date. What is a futures contract size?

How is a futures contract different from a forward contract?

A futures contract is distinct from a forward contract in two important ways: first, a futures contract is a legally binding agreement to buy or sell a standardized asset on a specific date or during a specific month. Second, this transaction is facilitated through a futures exchange.