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 is a December 2022 futures contract?
For example, a December 2022 corn futures contract traded on the CME Group represents 5,000 bushels of the grain (trading in dollars per bushel) to be delivered by a certain date in December 2022. Crude oil futures represent 1,000 barrels of oil and are quoted in dollars and cents per barrel. Who trades futures contracts and why?
What are the advantages and disadvantages of a futures contract?
There are a few advantages that futures contracts have over other investments such as stocks and bonds: There is greater volatility within the futures market. On average, futures prices tend to fluctuate more than stock or bond prices.
