Futures contract

A futures contract is a standardized, exchange-traded agreement to buy or sell an asset at a specified price on a future date. A clearinghouse typically guarantees performance and manages daily settlement.

Mark-to-market: The regular revaluation of an asset or position using current market prices. Daily mark-to-market transfers gains and losses between futures accounts as prices change.
Hedging: A strategy that reduces exposure to potential losses by taking an offsetting position. Producers and buyers use futures to offset uncertainty about future sale or purchase prices.
Forward contract: A privately negotiated agreement to buy or sell an asset at a set price on a future date. Unlike futures, forwards are usually customized and traded over the counter.
Price discovery: The process through which buyers and sellers establish a market price by trading and sharing information. Futures prices provide widely observed estimates of prices for future delivery.
Dōjima Rice Exchange: An organized rice market established in Osaka in the eighteenth century, known for trading rice certificates and forward-like contracts. Its rice trading is an early landmark in the development of organized futures markets.
Initial margin: Funds or collateral required to open a leveraged position or secure a financial obligation. Futures traders post initial margin to cover potential losses, rather than paying the contract’s full value.
Speculation: Taking financial risk in pursuit of gains from anticipated changes in market prices. Speculators take futures positions to profit from price movements without needing the underlying asset.
Options contract: A contract giving its buyer the right, but not the obligation, to buy or sell an asset at specified terms. A futures position obligates both sides, while an option buyer may let the contract expire.
Contango: A market condition in which futures prices exceed the current spot price or nearer-dated futures prices. The shape of a futures curve can affect hedging costs and investment returns.
Chicago Board of Trade: A Chicago commodities exchange founded in 1848 that became a major center for standardized futures trading. It helped establish standardized grain contracts and modern exchange practices.

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