Futures
A contract agreed in advance to buy or sell at a set price on a set future date — used for directional bets or hedging on indexes, commodities, and the like.
In plain terms
Futures are "a contract agreed in advance to buy or sell on a set future date, at a price decided now." It began with farmers contracting before harvest — "I will sell rice at this price in the fall" — to reduce the risk of price swings.
If an option is "a right you may or may not use," a futures contract is "a promise (obligation) that must be fulfilled." So on the agreed date it has to be settled, whatever the gain or loss.
What it tells you
Futures are used to take a position on the future price of things like indexes (S&P 500 and so on), crude oil, or gold, or to guard against price swings (hedging). Because a large amount can be traded with a small margin deposit, the leverage is very high.
Movements in "index futures" are also used as a window into market mood before the regular session opens. When the news says "futures are starting lower," it is gauging the tone at the open.
Formula
Futures = a contract to buy or sell at a set price at a specified point in the future (unlike an option, this is not a "right" but an "obligation" that must be fulfilled)
What high or low means
Looking at whether the futures price is above or below the current price gives a glimpse of how the market views the future. But this is only an expectation, not something settled.
The direction of index futures before the open is a reference for the day's market mood, but things often turn out differently once trading actually begins.
Futures carry high leverage, so even small price moves cause large swings in gains and losses relative to the margin. Losses can exceed the margin originally deposited, so like options, this is a very risky instrument for beginners.
"Futures are up = stocks will be up today" is not guaranteed. It is only the mood before the open, and it can reverse at any time during the session.
Futures quotes and open interest data are separate market data. This term is background knowledge for understanding market news.
Metrics to read alongside
See it in real stocks
Search US stocks on Stocklore to see Futures and other financial metrics alongside the sector benchmark.
This explanation is for information and reference only and is not a recommendation to buy or sell any security. Investment decisions and their consequences are your own.