Encyclopedia of Investment Terminology

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Futures Contract

A futures contract is a contract between a seller who agrees to sell at a specified price in the future a specified quantity of a specified commodity, which could be stocks, bonds, currency or other financial instrument, and a buyer who agrees to buy the commodities as specified in the contract. The price established in the contract is known as the Futures Price and it is determined supply and demand at the time the parties enter into the contract.

A futures contract will include a delivery date, or final settlement date, a settlement price, and it will grant the holder of the contract the obligation to accept delivery under the terms of the contract. Both the seller and the buyer of the futures contract must fulfill the obligation as the contract states on the settlement date.

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