Definition
A futures contract is a standardised agreement traded on an exchange to buy or sell a specific quantity of an underlying asset at a predetermined price and date. Futures are used by traders for speculation and by businesses for hedging.
Standardisation
- Contract size (e.g., 100 barrels for WTI crude micro)
- Tick size and value
- Expiration months (e.g., quarterly)
- Delivery vs cash settlement
Common Futures Markets
- Equity index futures (ES, NQ)
- Metals (GC gold, SI silver)
- Energy (CL crude, NG natural gas)
- Agricultural (corn, wheat)
- Currencies and rates
Why Use Futures
- Deep liquidity
- Regulated central counterparty
- Transparent pricing
- Efficient short selling
Risks
Futures are leveraged instruments and can move very fast. Overnight gaps, session breaks and margin calls are all part of the landscape.
Key Takeaways
- Futures are exchange-traded, standardised leveraged contracts.
- They serve both speculation and hedging.
- Understand contract specifications and expiration before trading.