Commodity Futures Contract

An agreement to buy or sell a fixed quantity of a commodity at a specific price on a specific date in the future. A position in the stock market can be protected or hedged using commodity futures. They can also be used to make directional bets on the underlying asset. Investors frequently mix up futures and options contracts. The holder of a futures contract is required to take action. The underlying asset must be purchased or sold at the stated price if the holder does not unwind the futures contract before it expires. The spot commodities market can be contrasted with commodity futures.