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Futures Contract

Trading Term

A financial contract which obligates the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a specified future date and price. Futures contracts may call for physical delivery of the asset or may be settled in cash. Futures can be used to speculate on the price movement of an underlying asset. For example, a wheat producer might use futures to lock in a specific price and reduce risk. Anyone can speculate on the price movement of wheat using futures. The main difference between an option and a futures contract is that an option gives the holder the right to buy or sell an underlying asset, while the holder of a futures contract is obligated to fulfill the terms of the contract. See Also

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