This edition of ET in the Classroom explains the basics of futures trading. Futures contracts derive their value from underlying commodities.
They are contracts that facilitate the purchase or sale of underlying commodities at a fixed price for delivery on a future date.
Assume you are a jeweller whose raw material is gold. You need to deliver jewellery on, say, February 15. Your risk is that of gold prices rising in case you don’t want to buy the metal today.