What is FUTURES CONTRACT?

Agreement to buy or sell a commodity, financial instrument, or security, on a stated future date, at a specified price; made binding when conducted on-the-fly, on-the-trading-floor. Standardized agreements for quantity, quality, delivery location, and delivery time for each item. Typically no actual delivery occurs as counter-contracts settle, or trade out the agreements. Mitigates the risk of wild price fluctuations as a hedge. A futures contract is an obligation requiring completion of the transaction. Contrast to an option. An option is a purchased right to buy or sell an item. An option lapses if not exercised.

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