Futures contracts are typically traded on a stock exchange, which sets the standards for each contract.

Regardless of the underlying asset, it’s an agreement between parties to exchange an asset at a specific price and date set in the future regardless of the current market price at the time the contract expires.

The buyer of a futures contract is taking on the obligation to buy and receive the underlying asset when the futures contract expires. The seller of the futures contract is taking on the obligation to provide and deliver the underlying asset at the expiration date.

Buyers make money when the price increases before the expiration date. Their profit is the difference between what they agreed to pay under the futures contract agreement, and what the fair market value of those futures is now. To calculate futures, you multiply the stock price by the number of units in the contract.

Futures contracts also dictate how the trade will be settled between the two parties on the contract. Will the contract holder take physical delivery of the underlying asset, or will it provide a cash settlement for the difference between the contracted price and market price at the time of expiration?

If a speculator thinks the price of oil will spike over the next few months, they can buy a futures contract for three months or more from the current date. To avoid taking physical delivery of the underlying asset, you will likely need to close your position before expiration. Most people don't have the space to store thousands of barrels of oil or tons of corn.

In the United States, futures contracts are regulated by the Commodity Futures Trading Commission (CFTC).

The most commonly traded stock futures are on the S&P 500 and Nasdaq 100 indices. Entering into a stock indices futures contract protects both the buyer and seller against adverse pricing movements after the date the agreement was entered into.