Futures
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Join →What Are Futures?
A futures contract is a standardized agreement to buy or sell an underlying asset or financial quantity at a specified price under predefined contract terms. Futures are traded on organized exchanges and have standardized specifications such as contract size, tick size, and expiration.
What Makes Futures Different?
- Standardization: exchange-defined contract specifications.
- Expiration: contracts generally have a defined expiry.
- Margin: traders post margin rather than paying the full notional value in the same way as a cash purchase.
- Leverage: a relatively small amount of margin can control a larger notional exposure.
Futures exist on financial and physical underlyings, including equity indexes, interest rates, currencies, energy, and agricultural commodities. The exact settlement and delivery mechanics depend on the contract.
Key Terms
Futures contract, underlying, expiration, contract size, tick size, margin, leverage, settlement.
Knowledge Check
- What is a futures contract?
- Why is standardization important?
- Why can futures create significant exposure relative to the margin posted?
