Futures contract

A futures contract is a legally binding contract to buy or sell a commodity at a certain price at a specified date in the future. Futures markets thrive because they attract two types of traders: hedgers and speculators. Hedgers, such as producers and processors of commodity products, seek to protect against adverse changes in the underlying cash price that may impact their business. Speculators include investors and traders who want to profit from price changes. Speculators accept the price risks and rewards that hedgers wish to avoid. Futures markets provide the forum in which speculators can buy or sell contracts quickly and — just as quickly — exit their positions to react to market changes.