Futures Foundations · Futures Trading Guide
A futures position creates an obligation whose value changes with an underlying market. Begin by separating the contract from the cash deposited to support it.
Start with the agreement
A listed futures contract standardises an underlying exposure, quantity and settlement process for a specified maturity. Buying creates a long position and selling creates a short position. Unlike an option buyer, a futures trader does not purchase a right that can simply be abandoned for a fixed premium. Both sides must meet the contract and margin obligations while the position remains open.
Follow a simple transaction
Assume a fictional contract represents 100 units of a commodity and trades at $80 per unit. Its notional value is $8,000. A trader buys one contract and later sells the identical maturity at $83. The price change produces $300 gross profit. The opposing short position loses the same amount before costs. A move to $77 instead produces a $300 loss for the original buyer.
Understand what clearing changes
The clearing system stands between counterparties and manages performance through collateral and settlement. It reduces direct counterparty exposure but does not make a trade safe or eliminate broker, clearing or operational risk. Customer money protection depends on the applicable legal structure. For U.S. futures accounts, segregation is different from deposit insurance, and recovery can be incomplete in an insolvency.
Identify how the position ends
Selling the same quantity of the identical contract offsets a long position. Buying it offsets a short position. Trading a different maturity usually creates a spread instead of closing the original exposure. A position held into its settlement process can produce delivery or cash obligations. Write down the exact symbol, exchange, maturity, quantity and intended exit before evaluating a strategy. A chart name alone is not a complete trade description.
Try it yourself
You are long two December contracts. You sell two March contracts on the same underlying. Have you closed the December position?
Show the worked answer
No. You now hold a position across two maturities. To offset December, the opposite transaction must be in the same December contract, subject to the account and venue arrangements.
Further reading
- CME Group: Definition of a futures contract
- CFTC: Economic purpose of futures markets
- NFA: Investor questions and account protection
Educational material. Prices, margins and strategy examples are hypothetical unless explicitly identified as contract specifications. They are not trade recommendations. Futures losses can exceed deposited collateral. Product terms and eligibility vary by venue and jurisdiction.
