Business and Personal Finance Dictionary

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• FUTURES CONTRACT
  
  A futures contract obligates you to buy or sell a specified quantity of the underlying investment, which can be a commodity, a stock or bond index, or a currency, for a specific price at a specific date in the future. But you can usually sell the contract to another trader or offset your contract with an opposing contract before the settlement date. Futures contracts provide some investors, called hedgers, a measure of protection from the volatility of prices onthe open market. For example, wine manufacturers are protected when a bad crop pushes grape prices up on the spot market, provided they have a futures contract to buy the grapes at a set price. Similarly, grape growers are protected if prices drop dramatically-if, for example, there's a surplus caused by a bumper crop-provided they have a contract that sets the price at a higher level. Unlike hedgers, speculators use futures contracts to seek profit on price changes. For example, speculators can make (or lose) money, no matter what happens to the grapes, depending on what they paid for the futures contract and what they can sell it for.
  
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