A derivatives contract for the sale and purchase of a specified asset or basket of assets at a specified price on a specified future date. Futures contracts are similar to forward contracts, however, futures contracts include standardized terms and are traded on registered exchanges, whereas forward contracts are bilaterally negotiated over-the-counter (OTC) derivatives.

Unlike forward contracts, futures contracts are cleared by a clearinghouse, which collects margin collateral from both parties to the transaction to collateralize each party's exposure under the contract, assuming the credit risk of the counterparties (see Practice Note, Mechanics of Derivatives Clearing).

While forward contracts reflect both counterparty credit risk and market risk, futures contracts aim to eliminate counterparty risk to the extent possible, leaving only market risk. Assets that are most commonly referenced in futures contracts include equities, treasuries, index units, currencies, and commodities. Futures contracts may be cash settled or physically settled. Like most derivatives contracts, futures contracts may be used as hedges as well as for speculative investment.

For more details on futures contracts, see Practice Notes: