Futures contract

Futures contracts are traded on organized markets. The contract is standardized: we know in advance the characteristics of the underlying, the volume, the place and the date of delivery. However, physical delivery in futures contracts remains exceptional. In most cases, there is compensation of the position - resale or resumption of the contract. The futures contract is therefore a financial risk management contract and not a supply contract.

The prices of futures contracts are subject to supply and demand: if traders take more long (buying) positions than short (selling) positions, the price increases. Thus, over the life of the contract, its price represents a consensus of opinion on the levels that the price of the underlying product should reach on a certain date. The closer we get to expiration, the closer the price of the future gets to that of its underlying.

For example, an investor buys a gold future at €100 with a 1-month maturity in anticipation of a rise in the price. At maturity, the price of gold is €120. The investor buys gold at €100, recording a gain of €20.