Futures are a kind of derivative contracts in which one is required to buy or sell an underlying asset like commodity, stocks, currency and more. Or to put it in other words, future contracts are contracts in which the parties agree to buy or sell a specified quantity of stocks or commodities at a specified price at a future time. It is worth noting that, the physical delivery of the assets on the expiry of contract is not compulsory as these contracts by their very nature are entered into with the aim of speculation or hedging.
If this still does not clear the cloud, here is an example of a fictitious factory.
Bill , the owner of Juicy Factory which produces juice, is considering to start manufacturing berry juice. But since the product is new for his area, he is a bit worried about his investment in berry juice which costs him $1 per bottle. He enters into a futures contract with Jack who agrees to pay $3 for every bottle at the end of three months. Now, suppose the news of a berry juice scam breaks out and since there are few takers as people grow skeptic about berry juice, the price falls to $2 in market price, Bill stands to gain $1 per bottle of juice. But if price shoots up to $4 because people suddenly become interested in berry juice because a research shows that it is good to fight cancer, Jack will earn $1 per bottle as he can sell them in market at higher price than he had to pay.
Here Bill is hedging and Jack is speculating. There is more to future trading but this should give you an idea. In the stock market, shares become the underlying assets.
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