Futures trading: contracts, margin, risk and strategies

Lesson 1 · 6 min

What a futures contract is

A futures contract is a standardised obligation to buy or sell a reference, or to settle the difference in cash, on the terms of that contract. The long gains when the futures price rises. The short gains when it falls. Both sides have obligations. A clearing house stands between them, and collateral moves as the price is marked.

The futures price is not the spot price. It can reflect interest, storage, dividends or the convenience of holding the physical commodity. Buying the future does not send the purchase price to the producer the way a primary share issue can send cash to a company. This page uses a hypothetical contract. It does not print a live exchange specification.

Lesson 2 · 6 min

Contract specifications and multipliers

A specification names the reference, the contract unit, how the price is quoted, the minimum increment, the currency and the venue. The multiplier turns a quoted price into money. A micro contract is a smaller version of that idea where an exchange actually lists one. The two multipliers are not interchangeable, and a broker ticket can differ from the exchange’s full-size contract.

Type the unit you were given. This academy does not substitute a remembered CME, ICE or Eurex multiplier. Those figures belong on the exchange’s current specification, and a broker can still set a stricter house margin than the clearing minimum.

Lesson 3 · 8 min

Tick value, points and notional

Notional is the futures price times the multiplier times the number of contracts. A tick is the minimum price step. Its cash value should equal the tick size times the multiplier when both are quoted in the same unit per contract. If the two disagree, this page says so. It does not treat them as the same number.

One contract at 100 with a multiplier of 50 has a notional of 5,000. A tick of 0.25 with a tick value of 12.50 agrees, because 0.25 times 50 is 12.50. A move from 100 to 101 is four ticks and 50 of price result before fees.

Lesson 4 · 7 min

Initial margin, maintenance and variation

Initial margin is collateral to open the obligation. Maintenance margin is a level below which the clearing house or the broker can require more cash. Variation margin is the daily mark-to-market payment. House margin can sit above the exchange minimum and can change.

In the baseline, initial margin is 1,000 and maintenance is 800 against a 5,000 notional. The 1,000 is not a loss cap. A gap through the stop can cost more than the cash posted. The lab uses the same futures study as the margin calculator.

Lesson 5 · 6 min

Expiration, settlement and delivery

Each contract has a month, a last trading day and a settlement method. Equity-index contracts are often cash-settled. Some commodity contracts can move toward physical delivery if a position is left open. Notice periods and the exact timetable are in that contract’s rulebook. This page does not invent a delivery date.

Rolling means closing the near month and opening a later one. That is a new pair of trades, with its own prices and costs. It is not the same as continuing to hold a cash asset.

Lesson 6 · 6 min

Orders and execution

A market order seeks the price available when it arrives. A limit order sets a bound and can remain unfilled. A stop becomes an order when a trigger prints. A stop-limit adds a bound and can miss the market after the trigger. The bid, the ask and the size at those prices decide the fill more than the last trade.

Exchanges can halt trading or limit how far a price may move in a session. Hours differ by venue and they move with the calendar. None of that promises the price you typed.

Lesson 7 · 6 min

Trading costs and the roll

A round turn can include broker commission, exchange fees, clearing fees and a market-data charge. The bid-ask spread and slippage sit in the price, not always on the commission line. Type the total you want the lab to subtract. This page does not publish a firm’s schedule.

Contango means a later month is priced above the near month. Backwardation means the opposite. Rolling through contango is not automatically the same loss for every strategy: a hedge, a spread and a long-only roll use the curve differently. The shape can also change.

Lesson 8 · 7 min

Position size and a risk budget

A risk budget is cash you decide to lose if the stop is filled at that distance. Divide the budget by the cash of one tick times the ticks to the stop. Round down to a whole contract. The margin for that many contracts is a second check: you can be inside the loss budget and still short of collateral.

A gap can fill beyond the stop, so the budget is a plan, not a ceiling. The public position-size and risk-reward tools use distances you type. The futures study on this page keeps the tick and the multiplier together.

Lesson 9 · 6 min

Trend-following rules

A trend rule might buy after a price holds above a moving average you defined, and exit when it closes back through a trailing stop you also defined. The size still comes from the cash budget and the tick value. The costs of being wrong include the spread and any roll.

The rule fails in a range: the average flips, the stop is hit, and the next signal repeats the loss. Nothing here says trend-following has worked, or will work. There is no backtest on this page.

Lesson 10 · 6 min

Breakouts and momentum

A breakout rule names the range, the amount beyond it that counts, the stop back inside or beyond the other side, and the size. A false breakout trades through the level and returns. Slippage is often worse exactly when the level breaks, because many orders arrive together.

The chart on this page is a synthetic sketch of that idea. It is not a history of a listed contract. Changing the stop distance changes how many contracts the same cash budget allows. The page does not produce an order.

Lesson 11 · 7 min

Calendar spreads

A calendar spread is long one expiry and short another of the same reference. The position cares about the difference between the months more than about the level of both. The curve, the delivery rules and the liquidity of the far month all matter. Margin for a spread is a product rule, not half of two outright margins by default.

Each leg still has a price. Add the two results from the futures study. Do not reuse a single-direction formula and call it a spread. Losses can be large if the relationship you assumed reverses or if one leg cannot be closed at the price you used.

Lesson 12 · 7 min

Hedging with futures

A hedge sells or buys futures against an exposure you already have: an equity portfolio, a commodity inventory, or a currency receipt. The contract count is the exposure divided by the notional of one contract, rounded to a whole contract. The remainder is unhedged. The futures reference may not match the exposure exactly. That gap is basis risk.

An index future does not hedge a single stock one for one. A commodity future does not hedge a different grade or location without a basis. The hedge can lose on the futures leg while the exposure also moves. Imperfect is the ordinary case.

Lesson 13 · 6 min

Market structure and what volume does not say

A futures market is an exchange plus a clearing house. Volume is contracts traded. Open interest is contracts still open. Depth is the size at quoted prices. Concentration in one month can make the next month a worse hedge. Expiration week can change both liquidity and spreads.

None of those figures, alone, says the next price will rise or fall. Session hours and price limits are venue rules. Read the rulebook for the contract you type into the lab.

Lesson 14 · 8 min

Build a futures plan

A plan names the reference, the long or the short, the entry, the stop, the target, the tick, the multiplier, the contracts, the margin you are assuming, the fees and the rule that would invalidate the idea. The lab turns those into a notional, a gain at the target, a loss at the stop, a net after fees, and the margin you typed.

Finishing the form is not a recommendation and not permission to send an order. The margin is only as good as the figure you entered. A broker’s house margin, a gap and a delivery notice can all sit outside the sketch.

Explore trading strategies

Each card is a way of writing a rule. None is a recommendation, and none has a win rate on this page.

Knowledge check

Ten questions on the baseline contract. The score stays on this page.

Learn, calculate, then review

• Position sizeA cash budget divided by a stop distance you type.
• Risk and rewardA ratio from distances. Not a probability.
• Stop and targetPrices from an entry and distances you choose.
• Profit and lossA result from entry, exit, multiplier and fees.
• Trading journalA hypothetical or actual note, under that tool’s privacy choice.
• Trading performanceA reading of records you already keep.

The lab uses the futures margin study. The full calculator route is not in the public directory, so the same inputs stay on this page. Nothing here is sent as an order.

Related reading

• Commodity markets
• Index markets
• Strategy research
• Risk and volatility
• Platform intelligence
• Order types
• Risk management
• Liquidity