Futures contract
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
An exchange-traded, standardized forward contract.
Futures contract in plain English
A futures contract is the same basic idea as a forward — agree now to buy or sell something at a set price on a future date — but it's bought and sold on an organized public exchange with standardized, one-size-fits-all terms. The exchange sets fixed quantities and dates so anyone can trade them easily, and it acts as a trusted middleman guaranteeing both sides follow through. Think of it like the difference between a custom-tailored suit (a private forward) and buying a standard size off the rack (a futures contract) — the off-the-rack version is easier to trade because everyone knows exactly what they're getting. That standardization is what lets futures be freely traded by many people, not just the original two parties.
Learn these first
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide