All About Future Contracts

In form, a future contract is a standard legal agreement to purchase or sell a certain asset at a certain date in the future, by both parties not specified to each other in the present. The specific asset transacted is normally an equity instrument or a security. The assets that may be traded under future contracts include currencies, interest rates, stock indices and so forth. They are also traded online on a futures exchange. Futures contracts are generally created for hedging purposes.

A future does not mean an exact date but it refers to a period which is predicted to occur in the near future. This means that the prices will change as per the predicted market trend in the near future. For example, the price of oil has been fluctuating and the near future is predicted to see a hike in the price so traders can invest in oil now while its price is still lower than its present value. In short, the term ‘future currency’ in forex is used to describe future currency pair that is expected to gain or lose in terms of the present value of money over the next 30 days.

Some common examples of such future contracts are gold forwards, wheat forwards and barley forwards. Gold forwards are traded as forwards on gold and are normally sold after a period of time has elapsed wherein the selling dealer will buy the gold produced by the mining company. Wheat and barley traded as forwards on grains are usually traded by farmers who want to lock in the higher price of the grains in the future. The same principle is applied in all the different types of future contracts.