How Futures Contracts Work

A futures contract is an agreement to buy or sell a set amount of something at a set price on a future date. Futures are how most commodities trade. Here is how they work, including margin and daily settlement.

The agreement

A futures contract fixes the price today for a trade that happens later. Each contract has a standard size: one crude oil contract covers 1,000 barrels, one gold contract 100 troy ounces and one corn contract 5,000 bushels. Contracts trade on regulated exchanges, which stand in the middle of every trade.

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