A futures contract is a standardised contract which obligates a buyer to buy an asset or a seller to sell an asset at a price, currency and date determined in advance. Whereas both parties of a futures contract must fulfil the contract on the settlement date, purchasers of options contracts are granted the right to buy or sell assets; they are not obligated to fulfil the contract. Forwards contracts are another cause of confusion where futures are concerned. Futures and forwards both involve asset delivery at a prearranged date and price; the two differ though because futures are traded on an exchange whereas forwards are over-the-counter. Also, futures are margined (traders post a performance bond to protect the counterparty) which means that futures are less risky to deal with where credit is concerned.

The futures asset can be a commodity or other asset, the quantity and quality of which will also be predetermined and stated on the contract. Examples of traded futures assets are steel, grain, currency, bonds, stock and even interest rates.

Futures are traded on the futures exchange and while many are simply settled in cash, some contracts require the physical delivery of the traded asset. The delivery date is also known as the final settlement date or future date. Any additional cost to be settled on this date will be minimal due to the margining of futures, where contract holders are compelled to update prices daily to the equivalent of any purchased forwards.


Why Futures
Find out what sort of investors step into the futures market, the game they play and decide which party you belong to.
How futures contracts work
Be on the ball by seeing how the cogs of the futures market really turn and become aquainted with essential terms of the trade.
A closer Look
Examples are always essential to put knowledge in context. Take a closer look at a futures contract for better understanding.
Futures exchange
A list of the world's most prominent exchanges and summary of what these institutions do, and enriched, with the history of the futures exchange.
Options on futures
Futures contracts don't always have to be rock-solid. Find out how to manipuate the terms of contract using options.
Futures commodities
Learn what underlying assets are and take a look at the wide range of commodities that these derivatives get their value from.