Futures Contract

A futures contract is an agreement between two parties to buy and sell a specific item in a preset quantity and at a predetermined price at a future date.

The asset is paid for and delivered on a future date, known as the delivery date. The buyer of a futures contract is referred to as holding a long position, short for long, or just long. The seller of futures contracts is referred to as short or just short.

A futures contract’s underlying asset may be one of the following: commodities, equities, currencies, interest rates, or bonds. A reputable stock exchange is where the futures contract is kept. The interaction between the parties serves as a mediator and facilitator. The exchange requires both parties to deposit an initial nominal account as part of the contract, known as the margin.

The disparities in pricing are settled daily from the margin because futures prices must fluctuate every day. If the margin is depleted, the contractee is required to add more margin to the account. It is known as marking to market.

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