Futures Contract

Futures Contract

A listed futures contract is a legally binding agreement to buy or sell a standardised asset on a specific date or during a specific month in the future. Buyers or sellers of listed futures do not trade with each other; each side of a trade is a counterparty of the futures exchange, thereby doing away with counterparty risk. Futures exchanges also take care of clearing. Futures are widely used by a variety of end-users to express a view on price developments in the underlying asset in order to hedge or speculate on future prices. Exchange-traded futures standardise contracts by quality, quantity and delivery, including delivery location for contracts with physical underlyings such as agricultural or energy products. Standardisation facilitates trading. The only variable here is the price, which is matched by bidding and offering.

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