Futures Contract

In the maritime context, a futures contract is a standardized legal agreement to buy or sell a particular commodity or asset at a predetermined price at a specified time in the future. The buyer of the futures contract is taking on the obligation to buy and receive the underlying asset when the futures contract expires. Conversely, the seller of the futures contract is obligated to provide the underlying asset at the expiration date. In the shipping industry, futures contracts are often used as a risk management tool that allows parties to secure a certain price level, thus hedging against the risk of adverse price movements. They are traded on exchanges and are settled daily based on their current value in the market. For instance, freight futures are a type of futures contract used in the shipping industry to hedge against the volatility of freight rates. These contracts are based on the cost of transporting goods and are used to manage risk and speculate on future price changes.