Definition
Futures contracts are standardized agreements to buy or sell a specific quantity of an asset at a predetermined price on a future date. They trade on exchanges with daily margin settlements. Used for hedging (producers lock in prices) and speculation. Common futures include commodities, stock indices, and currencies.
Formula
Futures Price ≈ Spot Price × (1 + Risk-Free Rate - Dividend Yield)^Time
Example
A farmer sells corn futures at $6/bushel for December delivery, locking in a price regardless of harvest-time market prices.
FAQ
What is Futures Contract?
A standardized agreement to buy or sell an asset at a future date and price.
How do you calculate Futures Contract?
A common formula for Futures Contract is: Futures Price ≈ Spot Price × (1 + Risk-Free Rate - Dividend Yield)^Time
Why is Futures Contract important?
Futures Contract helps investors evaluate derivatives and make more informed decisions.