futures
Financial contracts obligating the buyer to purchase, or the seller to sell, an asset at a predetermined future date and price.
Example
“Farmers use futures contracts to lock in prices for their crops before harvest.”
Memory Tip
FUTURES are contracts about the FUTURE price of something. You're locking in tomorrow's price today.
Why It Matters
Futures allow individuals and businesses to lock in prices for commodities, currencies, or financial assets they plan to buy or sell later, protecting them from unexpected price swings. Understanding futures helps investors manage risk and potentially profit from price movements without owning the underlying asset.
Common Misconception
Many people think futures are the same as options, but they are different because futures contracts are binding obligations to buy or sell at the agreed price, whereas options give the buyer the right but not the obligation to execute the trade.
In Practice
A farmer might sell wheat futures in March for delivery in September at 6 dollars per bushel, locking in that price regardless of whether wheat prices rise to 8 dollars or fall to 4 dollars by harvest time. This protects the farmer from market uncertainty while allowing a food processor to guarantee their ingredient costs for the coming year.
Etymology
From 'future' — contracts that deal in future prices of assets.
Common Misspellings
Trade stocks, options & crypto commission-free
Related Terms
More in trading
Other trading terms you should know
See Also
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.