A futures contract is an agreement between a seller and a buyer that calls for seller to deliver to buyer a specified quantity and grade of an identified commodity or some asset, at a fixed time in the future and at a price agreed to when the contract is first entered into.
Futures contract is a forward contact traded in an exchange. Futures contract is standardized as quantity of commodity or asset, quality of commodity or asset, date and month of delivery, units of price quotations, and settlements.
In a futures contract, clearing house of the exchange becomes counter-party for each contract and therefore, there is no counter-party risk. Both buyer and seller must deposit margin money with the exchange which is 10-20% of contract value. There is secondary market for futures contract. Settlements are in three ways. They are actual delivery, reversing of trade and cash settlements.