Futures Contract Types

What are Index Futures?

Stock index futures are have recently become very popular and have a large number of contracts being traded daily. Index futures are created to replicate the performance of the underlying index that the futures contract represents. Index futures exists for many global stock markets such as the S&P500, DOW Jones Industrial Average, Russell 2000, German DAX, London's FTSE, French CAC40, and other established world markets.

What is a Forward Contract?

Similar to a futures contract, a forward contract is an agreement for the future delivery of a specified amount of goods at a predetermined price and date. 

What are Commodity Futures?

A commodity futures contract is an agreement to buy or sell fixed amounts of a specified commodity at a predetermined price and date. While there are speculators in every market, commodity futures are traded predominately by those looking to hedge the downside risk. The futures market for commodities allows buyers to hedge against falling prices of the physical commodity while sellers will use futures contracts to guarantee a sales price in the future.

As opposed to index futures, commodity futures are settled through physical delivery. For example, one "live cattle futures contract" commands 40,000 pounds of live cattle. At expiration, the buyer will be responsible for taking physical delivery of those cattle.

Various Types of Commodity Futures

Commodity futures can be broken up into a few main categories: grains, livestock, energy, metals, and food/fiber.