What Is a Futures Contract?
Futures are used by professional traders, hedgers, and speculators worldwide. Understanding how they work unlocks access to some of the most liquid markets on earth.
Basics · July 5, 2026 · 5 min read
A futures contract is an agreement to buy or sell a specific asset at a predetermined price on a specific date in the future. Futures exist for commodities (oil, gold, corn, wheat), stock indexes (S&P 500, Nasdaq, Dow Jones), currencies, interest rates, and cryptocurrencies. Unlike stocks, futures have an expiration date — you must either close the position or take physical delivery of the underlying asset by expiry. Most traders close positions well before expiry.
How Futures Differ from Stocks
Key differences: (1) Futures have expiry dates — stocks do not. (2) Futures are standardized contracts with fixed sizes — one S&P 500 E-mini futures contract (ES) controls $50 × the index value. (3) Futures use margin extremely efficiently — one ES contract typically requires $12,000–$15,000 in margin to control $250,000+ of value. (4) Futures markets trade almost 24 hours a day, 5 days a week. (5) Futures prices differ slightly from spot prices due to the cost of carry.
Popular Futures Markets
The most actively traded futures by retail traders: ES (E-mini S&P 500) and NQ (E-mini Nasdaq 100) — stock index futures providing leveraged exposure to the broad market; CL (Crude Oil) — extremely volatile, 1,000-barrel contracts; GC (Gold) — 100 troy ounce contracts; currency futures (6E, 6J, 6B). ES and NQ are widely considered the best starting point for new futures traders due to their liquidity and predictable behavior. Micro contracts (MES, MNQ) are also available for smaller accounts.
Why Futures Are Preferred by Professionals
Many professionals prefer futures because of: ultra-low commissions relative to contract size, highly liquid markets with tight spreads, 23-hour trading access, favorable US tax treatment (60/40 rule: 60% of gains taxed as long-term), no pattern day trader rule restrictions, and equal ease of going long or short. The primary barrier is the large notional value per contract — though micro futures (MES, MNQ) now solve this for smaller accounts.
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