Glossary · Defined term
Futures contract
A futures contract is a standardized exchange-traded agreement to buy or sell an asset at a set price on a future date.
Last updated Oct 2, 2026
What it means
A futures contract is a standardized agreement to buy or sell an asset at a predetermined price on a specific future date. Contracts exist for commodities like oil and wheat, for currencies, for interest rates, and for stock indexes. They trade on regulated exchanges with fixed contract sizes and expiration dates, which makes them liquid and transparent.
Futures serve two very different users. Hedgers use them to lock in prices and remove uncertainty: an airline can fix its future fuel cost, a farmer can fix the selling price of a harvest. Speculators use them to bet on price direction, attracted by the leverage, since a futures position requires only a margin deposit rather than the full value of the contract.
That leverage cuts both ways, and it is the defining risk of futures. A small deposit controls a large position, so adverse moves can produce losses far beyond the initial margin and trigger margin calls. Unlike stocks, futures contracts expire, so a position must be closed or rolled forward before expiration.
An example
For illustration, an airline buys oil futures at $80 a barrel for delivery in six months. If oil rises to $100, the airline still effectively pays near $80, having hedged its fuel cost; if oil falls to $60, the hedge loses money but the airline buys cheaper fuel in the spot market.