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Futures Contract

Futures Contract Definition

A standardized agreement to purchase or sell a defined amount of a particular security or commodity at a fixed price on a set future date. The buyer (or long) agrees to take delivery at expiration, while the seller (or short) agrees to deliver when the contract expires. The contract is subject to the terms and conditions established by a federally designated contract market upon which trading is conducted. Since futures contracts are transferable, they are themselves are often traded on the futures market.

A futures contract differs from an option in that an option is a right to buy or sell, whereas a future is a promise to actually make a transaction.

A future is part of a class of securities called derivatives, so named because such securities derive their value from the worth of an underlying investment.

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