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What are futures contracts?

What are futures contracts?

Futures contracts constitute a binding agreement to trade a commodity, share, or instrument at a future date at an agreed-upon price.

They are auctioned on regulated futures exchanges. Futures contracts are used primarily to deal with agricultural assets and natural resources but have come into use for anything that can be commoditized, including financial instruments and technological resources.

In it simplest form, a futures contract binds a buyer and seller to a quantity, quality, and price of an asset that is to be exchanged at a specified (future) date. They are primarily a hedging tool to protect investors from volatility that may occur between the time a buyer needs a good or an asset and the time that good or asset can be acquired.

There is also speculation surrounding futures, as with any derivative. Futures are auctioned and traded on regulated exchanges.

Keywords: commodities, hedging, exchanges, derivatives, Futures, speculation, managed futures,