A cash contract in which a seller agrees to deliver a specific cash commodity to a buyer at a specific time in the future. A method of anticipating future price movement using supply and demand information. Futures contracts are standardized according to the quality, quantity and delivery time and location for each commodity. The only variable is price, which is determined on an exchange trading floor. The practice of offsetting the price risk inherent in any cash market position by taking an equal but opposite position in the futures market.
Hedgers use the futures markets to protect their business from adverse price changes.
Also referred to as spot month. The total number of futures or options contracts of a given commodity that have not yet been offset by an opposite futures or option transaction nor fulfilled by delivery of the commodity or option exercise. Each option transaction has a buyer and a seller, but for calculation of open interest only one side of the contract is counted. A contract that conveys the right, but not the obligation, to buy or sell a futures contract at a certain price for a specified time period. The price of an option-the sum of money that the option buyer pays and the option seller receives for the rights granted by the option.