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Understanding Futures Contract

Understanding Futures Contract

A futures
contract is a financial agreement that is a popular investment to yield a
profit for an individual or business. A futures contract differentiates from a
standard equity purchase where an individual goes into the market and obtains a
stock through the seller’s asking price.

A futures
contract is a standardized agreement between a buyer and seller where the
parties agree to exchange equity for a specified price, a standardized
quantity, at a specific date in the near future. 

The contracts in a futures
agreement are for regular equities; however, the transaction is agreed upon for
future fluctuations.

Futures contracts, as opposed to regular equity
contracts, are purchased and sold on the futures exchange. Futures contracts
are not direct purchases of securities like traditional equity contracts,
bonds, or government investments, but instead are a form of derivatives. 

the buyer agrees to purchase a futures contract, the underlying asset or equity
assumes a long position in a portfolio while the seller assumes the short

The price of
a futures contract is calculated through the equilibrium between supply and
demand among the market. The security in a futures contract can be seemingly
any asset; stocks, currencies, interest rates, or indexes can be coupled into a
futures contract. Whatever security can fluctuate in price changes can be
exchanged under a futures contract. 

The most significant portion of the futures
 is the fluctuation of the
underlying security’s price and the delivery date or date at which the contract