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   Futures Contract
   















 

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Futures Contract

An agreement, originally between two parties, a buyer and a seller, to exchange a particular good for a particular price at a date in the future, all of which terms are specified in a contract common to all participants in a market on an organized futures exchange. The contract must be for a specific amount of a good for delivery at a specific time as required by the exchange with the price determined in a public marketplace by 'open outcry' or on an electronic limit order book system. Futures contracts can be traded freely with various counterparties without material counterparty credit risk. After a trade is cleared, the exchange clearing corporation is the ultimate counterparty for all contracts, so the only credit risk is the credit worthiness of the exchange's clearing corporation. No credit intermediary is necessary, but margin deposits must be posted as performance bonds with the clearing broker and, in turn, with the exchange clearing corporation. Typically, variation margin payments mark futures positions to market at least once a day. Also called Listed Futures Contract. See Financial Futures Contract. See also Forward (diagram).

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