Futures Contract
A standardized obligation to buy or sell an asset on a future date.
What is Futures Contract?
Unlike an option, a futures contract is an obligation for both parties. Exchange-traded and marked to market daily, so gains and losses settle in cash each day. Used for hedging commodity and rate exposure and for highly leveraged speculation.
Futures Contract: a worked example
A farmer sells corn futures in June to lock in a price for an October harvest.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.