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Futures contracts

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Published: 11th August 2014 by William Webster

A futures contract is an agreement between two parties to make an exchange of a commodity on an agreed date in the future but the price is agreed today.
These are standardised contracts. This means that individual futures contracts are defined by the contract specifications. The specifications detail the contract size (amount being traded), exactly what is being traded, how the settlement price is determined and the date when settlement or delivery is to be made. This standardisation is a key part of futures. Both the buyer and seller know exactly what they are dealing in.

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