Futures Contract
A futures contract is an agreement between two parties to buy or sell a particular asset at a predetermined price at a specified time in the future. It is a type of derivative instrument, or financial contract, that derives its value from an underlying asset. Futures contracts are used by investors to hedge against price fluctuations in the underlying asset, or to speculate on the future price of the asset. They are traded on exchanges and are standardized according to the quantity, quality, and delivery date of the underlying asset.
History of Futures Contracts
Futures contracts have been around for centuries, with the earliest recorded contracts dating back to the 17th century in Japan. The first modern futures contracts were introduced in the 19th century in the United States, when the Chicago Board of Trade (CBOT) was established in 1848. The CBOT was the first organized futures exchange in the world, and it quickly became the largest and most influential. Today, futures contracts are traded on exchanges around the world, including the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the London International Financial Futures and Options Exchange (LIFFE).
Comparison of Futures Contracts
| Type of Contract | Underlying Asset | Delivery Date |
|---|---|---|
| Commodity Futures | Commodities such as grains, metals, and energy | Varies |
| Currency Futures | Foreign currencies | Varies |
| Interest Rate Futures | Interest rates | Varies |
| Stock Index Futures | Stock indices such as the S&P 500 | Varies |
Summary
Futures contracts are a type of derivative instrument that derives its value from an underlying asset. They are used by investors to hedge against price fluctuations in the underlying asset, or to speculate on the future price of the asset. Futures contracts have been around for centuries, with the earliest recorded contracts dating back to the 17th century in Japan. Today, they are traded on exchanges around the world, including the Chicago Mercantile Exchange (CME), the New York Mercantile Exchange (NYMEX), and the London International Financial Futures and Options Exchange (LIFFE). For more information about futures contracts, visit the websites of the exchanges mentioned above or consult a financial advisor.
See Also
- Options
- Derivatives
- Hedging
- Speculation
- Commodities
- Currency
- Interest Rates
- Stock Indices
- Exchanges
- Financial Advisors
