A standardized agreement traded on an exchange to buy or sell an asset at a predetermined price and date in the future. The exchange acts as counterparty and requires margin deposits, eliminating counterparty risk while providing liquidity and price discovery.
From Latin 'futurus' meaning 'about to be' and 'contractus' meaning 'agreement.' Modern futures markets began in 1848 at the Chicago Board of Trade for agricultural commodities, standardizing what had been informal forward agreements between farmers and merchants.
Futures contracts are like forward contracts that went to business school - they're standardized, exchange-traded, and backed by a clearinghouse that guarantees every deal! What's mind-blowing is that most futures contracts (over 95%) are closed out before delivery, meaning they're primarily used for price discovery and risk management, not actual commodity exchange.
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