futures market

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A market organization through which futures contracts are traded. These contracts commit both parties to buy and sell commodities, shares, or currencies on a future date at a price fixed when the contract is made. To ensure that both parties will be able to carry out their side of the bargain, the actual contracts are made between each side and the market organization, which requires both parties to make margin deposits with it of a given percentage of the market price of a contract. In most futures markets no actual delivery is made: the difference between the contract price and the spot price when the contract matures is paid by one party to the market organization, and by the market organization to the other. If the spot price is above the contract price the futures buyer gains and the futures seller loses; the opposite holds if the spot price is below the contract price.

Subjects: Economics.

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