Futures are standardised financial contracts that obligate parties to buy or sell an asset at a predetermined price on a specific future date. Traded on organized exchanges with standardised specifications for quantity, quality, delivery location, and settlement procedures, futures provide efficient price discovery and risk management tools. They cover commodities, currencies, interest rates, and equity indices.

Futures contracts require margin deposits and daily mark-to-market settlements, eliminating counterparty risk through central clearing. Most futures positions are closed before expiration through offsetting transactions rather than physical delivery. Futures serve essential functions including hedging price risk, speculation, and arbitrage between cash and futures markets.

Real-world example: A wheat farmer sells December wheat futures at $6.50 per bushel in March to lock in harvest revenue, while a flour mill buys the same contracts to secure input costs, with both parties using futures for risk management.