Futures Contract

Financial contracts that serve as proof that traders have agreed to buy or sell assets at a specific future date and price.

A futures contract is a type of forward contract that solidifies the agreement between two or more trading parties that a particular asset will be available for sale at a future date and price. These contracts are overseen by established exchange platforms, so that the involved trading entities cannot back out of the contract. The objective of a futures contract is to speculate on the price of the asset or commodity in question and protect oneself against possible fluctuations in the asset’s market price at the agreed-upon date.

Futures contracts are commonly used by traders to reduce financial exposure, especially when it is highly likely that prices will move unfavorably. Thus, a futures contract is one of the classic financial instruments for hedging in corporate finance.