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All futures contracts are generally made for the purpose of speculation or hedging. As such, the general procedure for settlement is the neutralization with the original contract by an opposite contract on settlement, so that only difference between the current as well as the contract cost is paid or received. It is rare that actual delivery of the goods is taken, and the price paid in settlement of futures contracts.

Futures trading could be the most notable feature of business activity on the commodity exchange. In fact, the commodity exchanges are organized mainly for futures contracts. The futures contracts are made for two distinct purposes: speculation and hedging. Accordingly, they are either speculative or hedging contracts. Speculative activity is such an essential part from the commodity exchanges that commodity exchanges are sometimes referred to as the speculative market.

All speculation represents an attempt about the part of individual to peep far into the future out from the window with the present. Speculation refers to an attempt to estimate the future trend of prices and proceed on that basis, to result in profit. Commodities may possibly be bought at the current price with the assumption of selling them at a higher price in future or vice-versa.

The line between gambling and speculation is very thin. For the surface both appear to be the same, but in fact speculation refers towards the taking up of legitimate enterprise (buy or sale of house, commodities, etc.) about the basis of an analysis of industry trends and other aspects that have a bearing on costs. When, however, people start speculating recklessly and blindly without applying their mind and intelligence, and without possessing the resources essential to meet their commitments, it degenerates into sheer gambling.

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