Futures Contract
A futures contract is a standardized agreement to buy or sell an asset at a set price on a specific future date, traded on an exchange.
Futures exist for commodities such as oil, gold and corn, for financial assets such as stock indices, Treasury bonds and currencies, and for bitcoin. Unlike options, both sides are obligated: the buyer must buy and the seller must sell at the agreed price, unless they close the position before expiration.
Futures trade on exchanges such as the CME Group and are cleared through a clearinghouse. Traders post margin, a fraction of the contract's value, and positions are marked to market daily, so gains and losses are credited or debited each day. This built-in leverage magnifies both profits and losses.
Producers and consumers use futures to hedge price risk; for example, an airline can lock in fuel prices. Speculators use them to bet on price moves. Most contracts are closed or rolled over before delivery, and index futures settle in cash.
Example: S&P 500 futures trade nearly around the clock on weekdays, so they are often used to gauge how stocks may open the next day.