Futures market

Futures market is a market for trading contracts wherein one party, usually a specialist, pledges for a certain sum of money to deliver to or buy from another party, the holder of the contract, a specified quantity of specified fungible commodities, securities or foreign exchange on a specified future date. Such contracts are primarily an extension of the division of labor principle whereby the speculative incidence of interim price changes are shifted from parties unfamiliar with the causes of such price changes to those with a special knowledge and understanding of expected price changes. Thus processors or manufacturers in need of future raw materials can know immediately the costs of such materials and foreign traders can likewise know immediately the domestic monetary equivalent of future payments for their exports or imports priced in foreign currencies.