A futures contract is a legally binding agreement traded on an exchange to buy or sell a specific quantity of a commodity or financial instrument at a pre-agreed price, with delivery of the asset set for a particular future date. These contracts are standardized in terms of quantity, quality, and delivery, ensuring ease of trading and liquidity.

The purpose of futures contracts often includes hedging to manage risk exposure or speculating to attempt profit based on market movements. For example, farmers might use futures contracts to lock in the price of their crops prior to harvest, ensuring they receive a reliable income regardless of market fluctuations. Similarly, investors might trade futures contracts on stock indices or interest rates to profit from anticipated market changes.

Futures contracts are traded on exchanges, and each contract is backed by a clearinghouse that mitigates the risk of default. Some related terms include "Hedge", "Fair Value", and "Economic Hedge"," as hedging strategies often utilize futures contracts. With their standardized nature and widespread use, futures contracts serve as critical tools in modern financial markets, enhancing both price stability and predictability.