Futures Contract

A futures contract is a standardized, exchange-traded agreement to buy or sell an asset (a commodity, an index, a currency, or an interest rate) at a set price on a set future date. Unlike options, both parties to a futures contract are obligated to complete the transaction, not just given the right to.

Futures are heavily used for hedging (a wheat farmer locking in a sale price before harvest) and for speculation, and they trade on margin with significant leverage, which means losses can exceed the initial amount deposited far more easily than in ordinary stock trading.