Futures Contract

A futures contract is a financial agreement between two parties to buy or sell an asset at a predetermined price on a specific future date. It helps manage risk by locking in prices, which is useful for businesses and investors. For example, a farmer might sell a futures contract for their crop to guarantee a price before harvest, protecting against price drops. Conversely, a company needing raw materials might buy futures to secure supply and avoid price spikes. These contracts are standardized, traded on exchanges, and require margin payments to ensure commitment.