Futures contract

A futures contract is a standardized, exchange-traded agreement to buy or sell a fixed quantity of a commodity at a set price on a future date.

Futures contracts are how most commodity price discovery happens. The exchange fixes everything except the price: the quantity, the deliverable grade, the delivery location, and the delivery month. Because every contract is identical, buyers and sellers do not need to know each other, and the clearing house guarantees both sides.

A farmer who sells wheat futures in spring locks in a price for grain that will not be harvested until summer; that is hedging. A fund that buys the same contract without any intention of taking wheat is a speculator. Both need the other.

Most contracts never end in delivery. Traders close positions before expiry, or the contract is settled in cash against a reference price. The price of the nearest contract, the front month, is usually what news reports quote. See spot vs futures and how a futures contract settles.