What are Futures Contracts?

Most financial and real asset transactions occur in what is known as the spot or cash market, where the asset is delivered immediately (or within a few days). Futures or futures contracts, on the other hand, call for the purchase or sale of a financial or real asset at some future date, but at a price which is fixed today.

Many developed countries with sophisticated financial markets have futures exchanges to provide price discovery in the various underlying products. In the US, the major futures exchanges include the Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (NYMEX). Futures contracts are divided into 2 classes, commodity futures and financial futures as follows:

Commodity Futures

• Oil
• Various Grains
• Oilseeds
• Livestock Meats
• Fibers
• Metals and Wood.

Financial Futures

• Treasury Bills,
• Treasury notes and bonds,
• Eurodollar deposits,
• Foreign currencies and
• Stock indexes.