Futures Contract Definition

Futures Contract Definition A futures contract a contract between two parties to buy a certain commodity or other asset in the next time, but at a price to be agreed upon today.

Futures Contract
Futures Contract

Usually the buyer thing in the future decade, the amount of standard quality, and consistent both parties on the price at that moment (usually called “Slippage” (strike price) “delivery and be in a specified future date (the so-called” delivery “date).

Buyer is committed to purchase the contract on the date of delivery as the seller is committed to sell; and this is the main difference between the futures and options contracts that are not only committed to the seller and the implementation of the deal unit, and be the buyer the option of non-implementation.

Futures exchange

The futures contracts traded on the futures exchange; which means that the futures market is a central market for futures traders from around the world.

Futures market was established in the first instance by farmers and traders. But today it was possible to buy futures contracts for any commodity or financial instrument.

The majority of futures traders buy those contracts or sell contracts based on speculation rather than deliberate physical item itself; they are not interested in the actual delivery of goods.

Companies that depend on its purchase of commodities futures contracts as they need actual receipt of goods and the need to stabilize the price so you can calculate the profitability may be used.

At the same time the seller had sold his goods at a price fluctuations protect him from the content is appropriate in the item price in the market delivery time.

Example: the seller presents 1,000 tons of wheat for Virtnext sale. Wheat continues to grow in the ground will not be harvested until after a couple of months later. The buyer and seller agree on the price of the implementation of a $50 per ton; and then, the contract value of $50,000. It is the date of delivery after the harvest by 12 weeks. In the history of the delivery price the buyer pays the agreed implementation, and the seller to transfer ownership of 1,000 tonnes of wheat to the buyer.

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