A future Contract is a contract for the future delivery of a commodity, currency or security on a specific date. In contrast to the Forward Contracts, futures contracts are for standard quantities and for standard periods of time and are primarily traded on exchanges such as the Sydney Futures Exchange.
A future contract is normally arranged through an organized exchange. It is an agreement between a buyer and seller at a time so that an asset will be exchanged for cash at some later date. As such a future contract is very similar to forward contract.
Future contracts are divided into two classes:
- Commodity Future: Commodity future that covers oil, various grains, fibers, metals, and wood, was first traded in the US in the mid-1980s.
- Financial Future: Financial future that was traded in 1975 include treasury bills, notes, and bonds, certificate of deposits, Eurodollar deposits, foreign currency, and stock indexes.
It is a contract in which the seller agrees to provide a certain standardized commodity to the buyer on a specific future date at an agreed-on price.
Use of the Term in Sentences
- All the future contracts with the delivery date within 31 December 2022 have been finalized; most of them are set at rates above GBP 1000.
- The price must be set by taking into consideration the probable inflation and other uncertainties for foolproof future contacts.