Futures

A futures contract is an exchange-traded agreement with standardised terms for future delivery or cash settlement. It creates obligations for both sides. See CME's contract definition.

Contract terms

The specification defines the underlying, contract size, price increments, expiry and settlement method. The quoted price alone does not tell you the size of the exposure.

A long futures position gains as the futures price rises; a short position gains as it falls. Price changes are scaled by the contract multiplier.

Margin

Initial margin is collateral required to open a position. Maintenance margin is the minimum balance required to keep it. Margin is not the purchase price or a cap on losses.

Losses can require additional funds or lead to liquidation. Requirements can change. See CME's margin guide.

Mark-to-market

Futures positions are settled against price changes each day. Gains and losses affect the account balance before the contract expires. See CME's mark-to-market guide.

Expiry and rolling

A position can usually be closed with an offsetting trade. A position held through expiry follows the contract's delivery or cash-settlement rules.

Rolling closes one expiry and opens a later one. They are separate contracts and can have different prices. See CME's expiry guide.

Unlike an option, a futures position does not give its holder a choice about meeting its remaining obligations.

Ticks and notional exposure

A tick is the minimum quoted price increment. Tick value combines that increment with the contract's multiplier. Position profit and loss depend on tick value and contract count, not just the displayed price change.

Notional exposure is the economic size of the position. A small margin balance can support a much larger notional amount, making percentage returns on the margin balance a poor description of the underlying price move.

Basis and the curve

The basis compares a futures price with the spot price; sign conventions vary. It changes with financing, storage, income from holding the underlying and supply conditions.

A futures curve compares different delivery months. Later contracts priced above nearby contracts are often described as contango; the reverse is backwardation. The shape is not by itself a forecast of where the spot price must go.

Contract calendars

Check the last trading day, settlement process and any delivery-related deadlines separately. An expiring contract can become unsuitable for the intended hedge before its final trading day.

Rolling preserves an exposure only approximately. The new contract can have different liquidity and sensitivity, and the two legs create execution costs. See CME's expiry and roll guide.