Fundamentals: What Are Futures?
Futures are financial contracts derived from spot markets, representing standardized agreements to buy or sell a specific commodity or financial asset at a predetermined future date and price. These contracts fall into categories like commodity futures (e.g., crude oil, gold) and financial futures (e.g., stock indices, bonds).
Key Features of Futures Trading
Standardized Contracts
- Terms (quantity, quality, delivery time/location) are fixed by exchanges, reducing negotiation costs and enhancing liquidity.
Centralized Exchange Trading
- All orders must be executed via exchange-matching systems; retail traders require brokerage members for access.
Leverage via Margin
- Traders post a fraction (e.g., 10–15%) of the contract value as collateral, enabling amplified gains/losses.
Two-Way Trading & Hedging
- Positions can be opened long (buy to profit from price rises) or short (sell to profit from falls). Most trades are offset without physical delivery.
Daily Mark-to-Market
- Positions are revalued daily, with profits/losses settled in cash. Margin calls ensure sufficient collateral.
Futures vs. Stocks
| Feature | Futures Trading | Stock Trading |
|---|---|---|
| Order Execution | T+0 (same-day exit) | T+1 (next-day exit) |
| Leverage | Margin-based (e.g., 10×) | Full payment required |
| Directional Plays | Long/short allowed | Long-only |
| Expiry | Fixed delivery date | No expiration |
👉 Explore leveraged trading opportunities
Advanced Strategies
Margin Calculation
- Formula:
Contract Size × Price × Margin %
(Example: 10 tons of copper at $7,000/ton with 12% margin = $8,400 per contract)
Trading Hours by Exchange
| Exchange | Day Session | Night Session (Select Products) |
|---|---|---|
| SHFE | 9:00 AM–3:00 PM | 9:00 PM–2:30 AM (Metals/Energy) |
| CME | 8:30 AM–3:00 PM | 5:00 PM–8:00 AM (Agri/Index) |
FAQs
Q: How do I mitigate risk in futures trading?
A: Use stop-loss orders, diversify across uncorrelated assets, and avoid over-leveraging.
Q: What’s the difference between "open interest" and "volume"?
A: Volume counts total trades; open interest tracks active, unsettled contracts.
Q: Can I trade futures overnight?
A: Yes, select commodities/metals offer extended hours, but liquidity varies.