A futures contract is an agreement between two parties – a buyer and a seller – in which the former agrees to buy a fixed number of shares or an index from the latter at a predetermined price in the future. When the transaction takes place, these details are agreed mostly on.
Futures contracts can be flexibly traded on exchanges because they are standardized in terms of expiry dates and contract sizes. A buyer may not know who the seller is, and vice versa. Furthermore, every contract is guaranteed and acknowledged by the stock exchange, or more specifically, the clearing house or clearing corporation of the stock exchange, which is an agency designated to settle trades of the investors on the stock exchange.