price at the end of a designated time period. The party that assumes the long (short) position is obligated to buy (sell) the underlying at the specified price. The terms of the contract are the product of negotiation between the two parties. As such, a forward contract is specific to the two parties. Although we commonly refer to taking a long position as "buying a forward contract" and con- versely taking a short position as "selling a forward contract," this is a mis- nomer. No money changes hands between the parties at the time the forward contract is established. Both sides are making a promise to engage inatransactioninthefutureaccordingtotermsnegotiatedupfront.   209     At expiration, the party with the long position pays the specified price called the forward price in exchange for delivery of the underlying from the party with the short position. The payoff of the forward con- tract for the long position on the expiration date is simply the difference between the price of the underlying minus the forward price. Con- versely, the payoff of the forward contract for the short position on the expiration date is the difference between the forward price minus the price of the underlying. Clearly, a forward contract is a zero-sum game. Now that we have introduced forward contracts, it is a short walk to futures contracts.       FUTURES CONTRACTS   A futures contract is a legal agreement between a buyer (seller) and an established exchange or its clearinghouse in which the buyer (seller) agrees to take (make) delivery of something at a specified price at the end of designated period. The price at which the parties agree to transact in the future is called the futures price. The designated date at which the parties must transact is called the settlement or delivery date. When a market participant takes a position by buying a futures contract, the indi- vidual is said to be in a long futures position or to be long futures. If, instead, the market participants opening position is the sale of a futures contract, the investor is said to be in a short position or short futures. As can be seen from the description, a futures contract is quite simi- lar to a forward contract. They differ on four dimensions. First, futures contracts are standardized agreements as to the delivery date (or month) and quality of the deliverable. Moreover, because these contracts are standardized, they are traded on organized exchanges. In contrast, for- ward contracts are usually negotiated individually between buyer and seller and the secondary markets are often nonexistent or extremely