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Ask the Institute

DATE: February 04, 2013

QUESTION:

Can you provide an in-depth definition of a Futures contract?

ANSWER:
Of course. A Futures contract belongs to a larger family of derivative financial products called forward contracts. A forward contract is an obligation to buy or sell a specific quantity of a specific commodity or specific financial instrument at a specified future date. A futures contract is similar to a forward contract except that all terms are standardized. Rather than covering a specific quantity being bought and sold on a specific date, a futures contract covers a standardized commodity for delivery on a standard date. This standardization of contract terms makes futures contracts easy to trade, because everyone knows in advance what the terms are. To learn more about Futures contracts, view this week's segment of "Ask the Institute."


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