Futures are a type of derivatives that creates the obligation for the buyer or seller to transact at a determined future data and price. The buyer will have to purchase the asset while the seller will have to sell the asset at a specific price.
Futures contracts are standardized in nature and the underlying assets include commodities, currencies, bonds and many others.
While futures can be used for speculating, a large majority of entities and corporations use them for hedging purposes against adverse price moves. Here, some firms may choose to physically settle on the product yet most trading ends up with cash settlements.
The difference between futures and options lies in the obligation which is the case for futures while for options, the right exists but not the obligation.
Futures contracts are leveraged products and allow for buying or selling at a fraction of the contract value, making them appealing as trading products. On the other hand, the leverage factor can magnify gains and losses.