Stock Investment Guide - What is a futures contract?


What is a Futures Contract?
Binding contract made to buy or sell a commodity, financial instrument, or security, on a stated future date at a specified price. These agreements are standardized in terms of quantity, quality, delivery location, and delivery time for each item, and do not normally result in an actual delivery but are settled (traded out) through counter-contracts. Used in hedging, futures contracts help mitigate the risk of wild price fluctuations. In contrast to an option (right to buy or sell an item that lapses if not exercised) a futures contract is an obligation fulfilled only by the completion of the transaction. Futures Commodities or securities contracted for delivery at a stated future date at a specified price. Such a contract (called futures contract) itself can also be traded.

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