What are futures contracts?
Futures contracts are legally binding agreement to buy or sell a financial instrument sometime in future at an agreed price. Future contracts are standardized in terms of quality, quantity and delivery time. The only variable is the price, which is discovered by the market. Futures contracts have different expiry validity and will expire after the completion of the specified tenure.
Futures contracts are legally binding agreements to accept or deliver a specific quality and quantity of product at a certain time and place, such as 50,000 pounds of Strict Low Middling Cotton in December, or 100 ounces of Fine Gold in August. Only about 2% of all futures contracts are settled by actual delivery of the product. All others are offset in the market by selling a long position or buying a short position. Futures markets allow people to come together in one place to fulfill the American dream of being able to buy and sell goods for profit. Futures Exchanges provide the place, rules, and organization for this to occur. As an investor, you could rent a storefront, buy inventory, and then hopefully sell your products at a profit after paying all of your overhead expenses. Futures allow you to buy and sell goods such as Wheat, Copper, or Cotton without having a storefront and overhead. For more information, click here.
A future contract is an agreement between two parties to buy or sell an asset at a certain time in the future for a certain price. They are normally traded on the exchange. The exchange specifies certain standardized features of the contract. As the two parties do not necessarily know each other, the exchange also provides a mechanism that give the two parties a guarantee that the contract will be honored.
