Planet Wealth – Australian Stock Market Education

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September 11, 2009

What is a Futures Contract?

By Planet Wealth

A ‘Future’ is a Futures Contract – essentially a legally binding agreement to buy or sell a commodity for a specific price at a predetermined time in the future.

If you buy a futures contract, it means that you promise to pay the price of the asset at a specified time.

If you sell a futures contract, you effectively make a promise to transfer the asset to the buyer of the future at a specified price at a particular time.

Every futures contract has the following elements:

• A Buyer

• A Seller

• A fixed expiry date (or maturity) some time in the future

• A price agreed upon, between the buyer and the seller, at the time of trade

So, a futures contract is a legally binding agreement to buy or sell a specific commodity, such as soybeans, or a financial instrument, such as gold or the Euro currency, on a particular date in the future, and at an agreed upon price.

Futures belong to a category of financial instruments known as derivatives, because their prices are derived from the value of the underlying instruments, items, or products.

Check out the E-mini webpage here…

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