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Futures contract

• A Futures Contract is very similar to the Forward Contract with the following exceptions:
i) Futures contracts normally trade on exchanges
ii) Futures contracts are marked to market. Hence, the futures price changes each day and changes are credited or debited into buyers' and sellers' accounts.
iii) Futures contracts require margin payments both by the buyer and seller. Moreover, the exchange guarantees the performance of the contract.
iv) Some futures contracts (such as Standards and Poor's 500 Index) are always settled in cash and not by delivering 500 stocks.< br>v) When the delivery of the commodity or the financial asset takes place the seller usually has a choice of delivering a number of alternatives.
vi) Maturities of futures contracts vary..

• A standardized, exchange-traded agreement to buy or sell a particular type and grade of commodity for delivery at an agreed-upon place and time in the future. Futures contracts are transferable between parties.

• Agreement to buy or sell a set number of shares of a specific stock in a designated future month at a price agreed upon by the buyer and seller. The contracts themselves are often traded on the futures market. A futures contract differs from an option because an option is the right to buy or sell, whereas a futures contract is the promise to actually make a transaction. A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

 
 Embedded terms in definition
 Asset
Buy
Cash
Class
Commodity
Contract
Delivery
Derivatives
Exchange
Forward contract
Forward
Futures contracts
Futures market
Futures price
Futures
Future
Margin
Marked to market
Market
Option
Right
Securities
Sell
Shares
Stock
The exchange
Time
Trade
Type
Underlying
 
 Related Terms
 

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