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Underlying Asset: The commodity or financial instrument that is agreed to be sold or purchased (e.g., gold, oil, wheat, stock index, a specific currency).

* Strike Price (or Futures Price): The price that is set today to complete the transaction in the future.

* Delivery Date (or Expiration Date): The future date when the sale and purchase must take place.

* Contract Size: Specifies the standard quantity of the agreed asset in one contract (e.g., 100 barrels of oil, 5000 bushels of wheat).

Why are futures contracts used?

Futures contracts are primarily used for two main purposes:

* Hedging:

Producers and consumers use them to protect themselves from price fluctuations. For example:

* A wheat farmer can sell futures contracts on his future crop today at a certain price to ensure a stable income, regardless of a decline in wheat prices at harvest.