Compared to spot contracts, which call for payment against physical delivery of goods immediately or after a specified period, a futures contract is a special type of agreement made strictly under the rules of a commodity exchange, which may or may not require actual delivery. of goods and payment in cash at a future date.

According to Emery, a futures contract may be defined as a contract for the future delivery of some good without reference to specific lots, made under the rules of some commercial body, in an established form, whereby the conditions as to unit of quantity , the quality and delivery time are stereotyped, and only the determination of the total amounts and the price remains open to the contracting parties.

Such contracts are intended exclusively for future settlement, although the exact date of settlement is decided by reference to the wishes of the seller and the established rules of the commodity exchange. Such contracts do not specify the particular grade of a product, but instead refer implicitly to a basic grade called the contract grade, accepted as the common grade for all future negotiations. Details regarding quantity, settlement time, quality, etc., are mentioned in the rules and regulations, and are common to all such contracts. The contracting parties must decide the price at which the contract will be settled, at some point in one of the trading months specified by the exchange.

Futures contracts are traded only on the “ring” of commodity exchanges, and not off the exchanges. Only members of a commodity exchange can enter into such a deal. No stranger can become a party to a future deal. Such contracts can only be made in multiples of a fixed trading unit. Such contracts may not be made in fractions of these units.