Forward contracts, in contrast to futures contracts, are privately negotiated and are not standardised. Futures A term used to designate all contracts covering the purchase and sale of financial instruments or physical commodities for future delivery on a futures exchange. A standardised agreement, traded on a futures exchange, to buy or sell a commodity at a specified price at a date in the future. Specifies the commodity, quality, quantity, delivery date and delivery point or cash settlement. 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.
The number of futures contracts bought or sold divided by the number of spot contracts whose risk is being hedged. The time period over which an investment is held. Index A measurement of the trend of share prices. It is not just an average of share prices, but weighted to reflect the number of shares outstanding for an individual scrip. A new mode of stock market investment in which, instead of buying individual shares one buys so many units of a recognised index.