What is a futures contract?

A futures contract is an agreement to buy or sell an underlying asset at a later date for a predetermined price. It’s also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at a later date for a predetermined price.

Why is a future contract called a derivative?

It’s also known as a derivative because future contracts derive their value from an underlying asset. Investors may purchase the right to buy or sell the underlying asset at a later date for a predetermined price. By purchasing the right to buy, an investor expects to profit from an increase in the price of the underlying asset.

What is the difference between asset and price in a forward contract?

Asset : This is the underlying asset in the contract that is to be sold by the buyer. Price : The price is the amount paid by the buyer on the expiration date of the forward contract when it is settled. Quantity : This is the amount the assets being transacted in the forward contract.

What are buyers and sellers of futures contracts obligated to do?

Buyers of futures contracts are obligated to take delivery of the underlying asset when the contract expires, and sellers are obligated to deliver. Some contracts require the delivery of a physical asset, while others are cash-settled. Futures track a wide range of commodities and financial assets.