A Commodity Futures Contract is an agreement to buy or sell a predetermined amount of a commodity at a specific price on a specific date in the future. Commodity futures can be used to hedge or protect an investment position or to bet on the directional move of the underlying asset.For example, If you are long on a particular stock, you can buy a put option to protect your position in case the stock price falls. Or, if you think the price of gold is going to go up, you can buy a gold futures contract.
Commodity futures contracts are traded on exchanges and are regulated by the Commodity Futures Trading Commission (CFTC).There are two types of commodity futures contracts:-1- Cash settled contracts – these contracts are settled by transferring cash between the parties based on the difference between the final settlement price and the initial price.2- Physical delivery contracts – these contracts require the delivery of the physical commodity between the parties.