Futures Primer Dakota State University Madison, SD, USA Futures Primer Definition of a Futures Contract A futures contract is an agreement to buy or sell a specific quantity of some asset at some time in the future at a price agreed upon at the time the agreement is made. Any asset whose future price is uncertain could be a candidate for a futures contract. The farmer was hedging, redistributing the price risk to the speculator, who was willing to take on the risk for the chance to earn a substantial profit. What the farmer makes or loses a speculator must lose or make.
Futures trading is a zero-sum game.
Daily Marking to Market A gain or loss on a stock purchase is not realized until the stock is sold. However, futures contracts are marked to market daily. A futures contract has no value when purchased or sold initially. Whatever gain or loss was achieved during the day is added or subtracted to the trader's account at the end of each trading day. A stock market investor could buy a stock and forget about it, but a futures trader cannot do that.