Futures


Futures are derivatives contracts made by a buyer or a seller of an underlying security with another party that is a legal obligation to buy or sell a mutually-agreed upon quantity of the security at a mutually agreed upon price by a specified date. Often, the buyer or the seller exit the contract by trading the contract itself on an exchange, instead of handling the units of the underlying securities.

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Because futures contracts have an obligation to make good on the payment, exchanges have a daily settlement feature on these. Acting as a clearing house, they ask both contract parties to settle the contract at the market price at the end of the trading day, for each day in the duration for which the contract is valid.