Definitions for futures contract
This page provides all possible meanings and translations of the word futures contract
an agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date; the contract can be sold before the settlement date
a standardized contract, traded on a futures exchange, to buy or sell a standardized quantity of a specified commodity (or financial instrument) of standardized quality at a certain date in the future, at a price (the futures price).
In finance, a futures contract is a standardized contract between two parties to buy or sell a specified asset of standardized quantity and quality for a price agreed upon today with delivery and payment occurring at a specified future date, the delivery date. The contracts are negotiated at a futures exchange, which acts as an intermediary between the two parties. The party agreeing to buy the underlying asset in the future, the "buyer" of the contract, is said to be "long", and the party agreeing to sell the asset in the future, the "seller" of the contract, is said to be "short". The terminology reflects the expectations of the parties—the buyer hopes or expects that the asset price is going to increase, while the seller hopes or expects that it will decrease in near future. In many cases, the underlying asset to a futures contract may not be traditional commodities at all – that is, for financial futures the underlying item can be any financial instrument; they can be also based on intangible assets or referenced items, such as stock indexes and interest rates. While the futures contract specifies a trade taking place in the future, the purpose of the futures exchange institution is to act as intermediary and minimize the risk of default by either party. Thus the exchange requires both parties to put up an initial amount of cash, the margin. Additionally, since the futures price will generally change daily, the difference in the prior agreed-upon price and the daily futures price is settled daily also. The exchange will draw money out of one party's margin account and put it into the other's so that each party has the appropriate daily loss or profit. If the margin account goes below a certain value, then a margin call is made and the account owner must replenish the margin account. This process is known as marking to market. Thus on the delivery date, the amount exchanged is not the specified price on the contract but the spot value.
Images & Illustrations of futures contract
Translations for futures contract
From our Multilingual Translation Dictionary
Get even more translations for futures contract »
Find a translation for the futures contract definition in other languages:
Select another language:
Discuss these futures contract definitions with the community:
Word of the Day
Would you like us to send you a FREE new word definition delivered to your inbox daily?
Use the citation below to add this definition to your bibliography:
"futures contract." Definitions.net. STANDS4 LLC, 2015. Web. 27 Nov. 2015. <http://www.definitions.net/definition/futures contract>.