Futures contract value date

The futures price is used to calculate a contract's value.

A futures contract is an agreement between a buyer and seller of an underlying asset: a commodity, like barrels of oil, or a financial instrument, like U.S. treasury bonds. At the time that the contract is established, the participants lock in the futures price, which is the price that will be paid on the delivery date. The delivery dates, which are standardized and occur monthly, can range from one month to many years into the future. The value of a futures contract at any given moment is the current futures price of one unit of the underlying asset times the number of units in the contract.

Purpose of the Futures Price

The futures price, which is the delivery price, is established in a contract agreement and locks in the price of an asset that will be delivered at a later date. No matter what happens to the asset’s price over the life of the contract, the delivery price is fixed. This is useful for participants such as wheat growers, who may enter into a contract early in the growing season. They sell one or more contracts to deliver a set amount of wheat at a delivery date around harvest time. The buyer of the contract may be a wheat processor. Both parties want the financial clarity that a guaranteed price provides. This use of a futures contract to prevent an unwanted loss on the underlying asset is called hedging. Speculators also trade futures, seeking to profit from changes in a commodity price without any intention of actually accepting or delivering the underlying asset - they use cash-settled contracts or close out physical-delivery contracts before the expiration date.

Contract Value

The futures price is used to calculate a contract's value.

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