Monday, December 27, 2010

Future

A futures contract is a contract to buy or sell a specified asset or security at a specified future date, price, quantity and quality. A futures contract is a legal obligation for a transaction to take place in the future. Some futures are cash settled while others e.g. commodities are settled through physical delivery. Futures are standardized contracts (in contrast to their close cousin, the forward contract - which is non-standard and traded over the counter) that trade on an exchange e.g. the CBOE, ICE, and are cleared through a central counter-party. Futures are useful for altering financial exposure, for example stock index futures can be sold short to protect a portfolio against the downside - a concept called hedging. Futures and other derivatives should be used only be relatively more sophisticated investors, or those with good advisors.

Synonyms: Futures, Futures contract, Derivative, Index futures, Single stock futures

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