Forward contract or Future

A futures contract is a derivative product that allows the purchase or sale of a determined quantity of an underlying asset at a date, called the maturity, and at a price fixed at issuance, with a product serving as its underlying. Unlike an option, it is a firm commitment.

Stock indices, commodities, currencies, and interest rates each have their own futures contracts. It is essentially a hedging instrument for financial institutions and multinational corporations. Operators thus protect themselves from sudden fluctuations affecting their profitability.

For example, an airline company buys oil several months in advance in order to smooth out the increase in the price of oil. If at maturity the oil costs more than the futures purchase price, the company will realize a substantial gain; conversely, it may lose the cost of its hedge but will then benefit from the drop in the price per barrel.

Futures contracts are the most traded financial instruments in the world.