Types of Derivatives-Cont’d Futures contracts-Cont’d A futures contract is a legally binding commitment to buy or sell a standard quantity of something at a price determined in the present (the futures price) on a specified future date. The buyer is called the long, and the seller is called the short. Futures contracts are “zero sum games”. The contract is traded on an organized exchange, and the potential gain loss is realized each day (marking to market. To ensure that each party fulfils its commitments, a margin deposit is required. The exchanges set a minimum margin for each contract and revise it periodically.
