Futures Contract (Noun)
Meaning
An agreement to buy or sell a specific amount of a commodity or financial instrument at a particular price on a stipulated future date; the contract can be sold before the settlement date.
Classification
Nouns denoting communicative processes and contents.
Examples
- A futures contract requires the buyer and seller to fulfill their obligations by the specified settlement date unless they close or roll over the position before then.
- The investor purchased a futures contract for 1000 barrels of crude oil to be delivered in six months at $50 per barrel.
- Companies use futures contracts as a hedging strategy to mitigate potential losses from fluctuations in commodity prices.
- The value of a futures contract can fluctuate significantly between the time it is bought and the settlement date, resulting in potential gains or losses for the holder.
- Traders often sell their futures contracts before the settlement date to avoid actual physical delivery of the underlying commodity or financial instrument.