What is a Futures Contract?

A futures contract is a standardised agreement to buy or sell an underlying asset at a “predetermined price” on a specified future date. Generally, futures contracts are traded on an exchange, and both parties are obligated to fulfil the contract according to its terms. 

For example, 

• Suppose an investor enters a gold futures contract to buy 100 grams of gold at ₹7,000 per gram, with expiry after one month. 
• The price of ₹7,000 is the predetermined price.

• If gold is ₹7,300 per gram at expiry, the contract value has increased by ₹30,000 (100 × ₹300).
• If gold falls to ₹6,700 per gram, the contract value has decreased by ₹30,000.

Futures are available on assets such as stocks, indices, commodities, and currencies. 

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