From Forward Contracts to Futures
Futures are simply forward contracts that are standardized in a way that makes them interchangeable. As a result, they can trade on exchanges just as stocks do. Each futures contract is stamped with a size (a number of bushels or gallons), a delivery date and the protection of a third party known as a clearinghouse, which ensures that both sides keep up their ends of the bargain.
This level of standardization makes futures a favorite tool of investors who are looking to participate in the commodities and currency markets. On the Chicago Mercantile Exchange, you can buy and sell futures in many kinds of products. These include:
