Source: istockphoto
Futures are financial contracts between two parties that constitute the purchase or sale of an asset at a set future date and price. Stock futures are a type of derivative instrument, where the agreed upon price is the futures price and the agreed upon date is the delivery date. The asset is specified to a standardized quantity and quality for the futures exchange.
The futures exchange is virtually an intermediary to ensure the contract’s fulfillment through the margin and marking to market. Ultimately, the cash exchanged is not necessarily the price set on the contract but rather asset’s current price as the difference will have already been reconciled through marking to market.
