Futures Contracts
Futures contracts, also known as financial hub products, are traded on a financial exchange. CME Group, which owns and operates some of the largest commodity exchanges, describes a futures contract this way:
- A legally binding agreement to buy or sell a standardized asset on a specific date or during a specific month.
- A transaction facilitated through an exchange.
Whether it is a futures contract for crude oil, natural gas, gold, cocoa or wheat, all of these agreements have several things in common. They all have a standardized contract. They all have contracts for specific future months. And all of them can be purchased or sold at any given time prior to their contract expiration.
That last similarity – buying or selling the contract at any given time – is like the ability to buy or sell a stock. This provides some flexible hedging opportunities for propane companies.
