Fundamentals of Futures - Futures Contracts RSS Feed

Basic Definition of Future Contracts

CME Group — Tue, 23 Sep 2008 09:44:00 EST

Futures contracts are:

1.Legally binding agreements
2.Standardized quantity and quality of underlying product
3.Designed to be bought or sold at a specific time in the future
4.Traded at a futures exchange

Futures Compared to Forward Contracts

CME Group — Tue, 23 Sep 2008 09:40:00 EST

Futures and forward contracts are similar since they are both agreements to buy or sell an asset at a certain time in the future for a certain price.

Futures Compared to Stocks

CME Group — Tue, 23 Sep 2008 09:30:00 EST

While both futures and stocks are exchange traded investment tools, there are some significant differences:

1.Stocks represent ownership in the asset
2.Futures are an agreement for a future exchange
3.Stocks and futures have different margin requirements
4.Futures are useful for hedging purposes

Futures Contract Design

CME Group — Tue, 23 Sep 2008 09:20:00 EST

A futures contract is introduced to address a specific industry’s need to hedge against disruptive variation in its supply.

1.Designed so futures prices and cash prices converge over time
2.Stable and predictable basis between cash and futures differences
3.Fits industry contract specification standards