What is a futures contract?
A futures contract is a supply contract between a buyer and a seller, whereby the buyer is obligated to take delivery and the seller is obligated to provide delivery of a fixed amount of a commodity at a predetermine price at a specified location.More specifically, a futures contract is financial contract between two parties who agree to exchange financial items or actual commodities for future delivery at a particular price. When you buy a futures contract, you are agreeing to buy an item, for a set price, for an item that a seller has not yet provided.
Now just because you participate in the futures market does not mean that you intend to receive or deliver the physical commodities. The buyers and sellers in the futures market typically secure a futures contract to hedge risk or speculate. They don't actually intend to exchange the physical goods. Because of this futures are used to for financial instruments specualators as well as producers and consumers.
