What is the meaning of the term future in financial markets?

Futures in financial markets represent a category of derivative contracts that stipulate the obligation for involved parties to buy or sell a specific underlying asset at a prearranged price and date in the future.

• These contracts are standardised, meaning they follow predetermined specifications established by the exchange where they are traded.
• It acts as a commitment between two parties to execute a transaction at a specified future date, agreeing on the price beforehand.
• These contracts serve as a means for investors to hedge against price fluctuations, speculate on the future price movement of the underlying asset, or gain exposure to various asset classes without owning the physical asset.
• The underlying assets in futures contracts can be diverse, ranging from commodities like gold, oil, or agricultural products to financial instruments such as stocks, bonds, or market indices. Futures can be employed in various sectors, including commodities, currencies, interest rates, and equity indices.

To know more, check out our blog on Futures Trading.