What Is a Futures Contract?
The agreement, the underlying, and why traders use them.
A futures contract is a standardized agreement to buy or sell an underlying market at a future date. The underlying can be an index like the S&P 500, a commodity like crude oil, or a metal like gold. Most active futures traders do not intend to receive or deliver the underlying product; they trade the price movement of the contract.
Every contract has two sides. The buyer is long and benefits if price rises. The seller is short and benefits if price falls. Because the contract is standardized by the exchange, traders can enter and exit positions without negotiating custom terms with another person.
The key idea is obligation, not ownership. A futures position gives you exposure to the value of the underlying market, but your profit or loss is based on how far the contract moves from your entry price. That makes futures powerful, liquid, and efficient, but it also means risk must be controlled before the trade is placed.