Futures Contract

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A futures contract is a derivative which binds two parties to a transaction in the future. For a given underlying asset the futures contract is defined by its maturity and strike price. Futures contracts are generally settled daily for the duration of their maturity.

Futures are generally settled by assessing the value of the contract and the party realizing a loss will pay the party realizing a gain that amount in their chosen currency. However, it is also possible for the contract to be settled with the actual transaction specified in the agreement.

Futures contracts are generally standardized to certain dates and prices. This concentrates the contract orders into distinct groups, increasing the liquidity of the contracts. Traders commonly use futures to leverage their trading.