What is a futures contract?

What is a 'Futures Contract'. A futures contract is a legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. Futures contracts are standardized for quality and quantity to facilitate trading on a futures exchange.

How do investors profit from futures contracts?

Investors profit from the right to sell if the price of the underlying asset decreases. The investor would sell the asset at the higher market price secured through the futures contract and then buy it back at the lower price. Who Trades Futures Contracts?

What is the difference between buyer and seller of a futures contract?

The buyer of a futures contract is taking on the obligation to buy the underlying asset when the futures contract expires. The seller of the futures contract is taking on the obligation to provide the underlying asset at the expiration date.

What is futures speculation?

Futures Speculation. If market participants anticipate an increase in the price of an underlying asset in the future, they could potentially gain by purchasing the asset in a futures contract and selling it later at a higher price on the spot market or profiting from the favorable price difference through cash settlement.