Futures
Short definition
A futures contract is a standardised forward traded on an exchange. Unlike an OTC forward it has daily margin, standard size and a clearing house as counterparty.
Detailed explanation
Commodity, FX and rate futures supply liquidity and a visible price. Standard size rarely matches the physical need exactly; basis (tenor, grade, pair) remains.
Daily P&L hits margin: even an economically working hedge can drain the 13-week cash budget. Without a liquidity line, futures are not a “perfect hedge”.
Why it matters for the CFO
A producer or consumer can lock price on-exchange; the margin call can still create a same-week cash squeeze.
How to read it
Hedge effectiveness is physical price minus futures (basis). Margin calls are a liquidity stress separate from P&L hedge.
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Definitions are educational. They are not investment, credit or tax advice.