What is a Futures Contract?

Futures markets trade in contracts, not shares like stocks. A Futures Contract is an electronic agreement (Contract), traded on a centralized exchange that lets the purchaser of a contract buy a certain product or commodity being for actual delivery of the product or commodity or simply just to profit on price movement in the direction the trader wants it to go, such as, market speculators. A person may choose to sell a contract instead of buying, thus committing the seller to sell a certain amount of product or commodity to the buyer. If the seller does not actually want to sell, for example, 5,000 bushels of wheat or 42,000 gallons of gasoline, then the seller may choose to exit their trade before any delivery obligations occur.