Futures contract:

Futures contract means a legally binding agreement to buy or sell the underlying security on a future date. Future contracts are the organized/standardized contracts in terms of quantity, quality (in case of commodities), delivery time and place for settlement on any date in future. The contract expires on a pre-specified date which is called the expiry date of the contract. On expiry, futures can be  settled by delivery of the underlying asset or cash. Cash settlement enables the settlement of obligations arising out of the future/option contract in cash.

Unlike forward contracts, futures are normally traded on an exchange. These markets being organized/standardized, are very liquid by their own nature. Therefore, the liquidity problem, which persists in the forward market, does not exist in the future market. In future markets, clearing corporation /house becomes the counter party to all the trades or provides the unconditional guarantee for their settlement i.e. assumes the financial integrity of the entire system. In futures markets, clearing  corporation/house maintains the accounts of all the operations in the market. So it is in a position to tell in the last trading day of the contract, who two are the counter parties to each other and provides the solution to the settlement problem, which is very acute in the forward market. 

The following example will help to understand the concept in a better way. Referring to the earlier example of A & B entered into a contract to buy and sell Reliance shares. Now, assume that this contract is taking place through the exchange, traded on the exchange and clearing corporation/ house provides the unconditional guarantee for its settlement, it would be called a future contract.