Legal Definitions - futures contract

A futures contract is a legal agreement between two parties to buy or sell a specific commodity at a predetermined price and date in the future. The Commodity Futures Trading Commission (CFTC) is responsible for regulating futures contracts in the United States. Futures contracts can be used to protect against price fluctuations.

• A farmer may enter into a futures contract to sell their crop at a set price before it is even harvested. This protects them from a drop in market prices.
• An airline may enter into a futures contract to buy fuel at a set price in the future, protecting them from price increases.
• A company may enter into a futures contract to buy a certain amount of gold at a set price in the future, protecting them from price fluctuations.

These examples illustrate how futures contracts can be used to manage risk and protect against price changes. By entering into a futures contract, parties can lock in a price for a commodity, which can be beneficial for both buyers and sellers.