Derivatives contract in which the seller agrees to deliver, and the buyer agrees to purchase, a certain quantity of an underlying commodity or instrument at a predetermined price on a specified settlement date
Futures are highly liquid standardised financial instruments that are traded in the derivatives market. There are two types of futures: financial futures and commodity futures. The underlying instruments of financial futures are stock indices, currencies, or interest rates, whereas commodity futures are tied to the movements of real goods such as raw materials or agricultural products. The value of a future depends on the value of the respective underlier.
The earliest derivatives transactions were commodity futures. Long ago, farmers wished to protect themselves against fluctuations in the prices of their crops. To do so, they entered into futures contracts to ensure that they would be able to sell their product at a favorable price the following year.
There are two sides to a futures transaction. A "long position" represents the buyer's obligation to purchase the underlying instrument or commodity for the predetermined price on the settlement date; a "short position" represents the seller's obligation to deliver the underlying instrument or commodity.
