Futures contracts are contracts between two parties to buy or sell a specific asset at a future date for a price agreed upon today. Delivery and payment occurs at a specified future date. Futures are used to speculate on the future value of an asset and to protect against anticipated price changes. The asset can be currencies, indexes, commodities or any number of choices. Some risks are involved, so traders should educate themselves about futures first.Futures contracts can derive from a variety of assets, from traditional commodities like corn, wheat and orange juice to different asset classes, like government bonds, interest rates, energies and stock indices.
Futures are highly liquid exchange traded financial instruments, meaning individuals can trade on tight spreads. The transaction costs are low, and their pricing is transparent due to the level of specificity found in Futures Contracts, as well as the regulations imposed by the various exchanges.