Trading term
What is Futures contract?
A futures contract is a standardized agreement to buy or sell an asset at a set price on a set future date. Unlike an option, both sides are obligated to transact. Futures are used to hedge or speculate on commodities, indexes, currencies and rates — with leverage and a linear, symmetric payoff.
A future locks in today a price for a transaction that settles later. The buyer (long) agrees to buy at the set price; the seller (short) agrees to sell — and both are bound to it, which is the key difference from an option's 'right, not obligation.' Futures are exchange-traded and standardized (fixed contract sizes, expiry dates and specifications), which makes them liquid and transparent. Most are closed out before delivery, so few traders actually exchange the physical commodity; they settle the price difference in cash.
Because both sides are obligated, a future's payoff is linear and symmetric — gain a dollar for every dollar the underlying rises above your entry (if long), lose a dollar for every dollar it falls, with no premium and no cap either way. Futures also carry built-in leverage: you post only a margin deposit (a fraction of the contract's value), so gains and losses are magnified relative to your capital. Daily 'mark-to-market' settles those gains and losses into your account each day, and a big adverse move can trigger a margin call.
Unlike an option, a future obligates both sides, so its P&L is a straight line: a dollar gained per dollar the price rises above the contract price, a dollar lost per dollar it falls — uncapped either way.
For example
One S&P 500 e-mini future controls about $250,000 of index exposure but needs only ~$13,000 of margin. If the index rises 2%, the future gains about $5,000 — a ~38% return on the margin. A 2% fall loses the same. That's the leverage and symmetry of futures.
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Explore Premium →Why it matters to you
Futures are the backbone of hedging and leveraged speculation across commodities, indexes and rates — the tool that lets producers lock in prices and traders take large, capital-efficient positions. Their linear, obligated payoff and daily settlement make them the cleanest way to express a directional view with leverage.
⚠ The obligation and leverage are unforgiving
Unlike an option buyer, whose loss is capped at the premium, a futures trader is obligated and leveraged — losses aren't capped and are magnified by margin. A modest adverse move can wipe out the margin and trigger a call for more. Treating futures like a bigger stock position, without respecting the leverage, is how accounts blow up.