MoneyPlanIt

Ways to trade and invest · Guide 10 of 11

What Are Futures? Futures Trading Explained for Beginners

Last reviewed 2 November 2026Advanced: uses leverage or contractsCovers the UK, US, EU, Australia and Canada

The short version

A futures contract is an agreement, traded on an exchange, to buy or sell something at a set price on a set future date4. Farmers and food companies have used futures for well over a century to lock in prices. Today most futures traders never take delivery of anything: they buy and sell the contracts to profit from price moves. Futures are heavily leveraged, and unlike retail CFDs there’s no protection stopping your account going below zero.

You get
A standardised contract traded on an exchange
Typical costs
Commissions, exchange fees, spreads
Can you lose more than you put in?
Yes, with no negative balance protection
Risk
Very high
  • Futures exist on stock indices, interest rates, currencies, oil, gold, grain and more.
  • Every contract has a fixed size. One contract can control tens of thousands in value.
  • You put down margin, a deposit that’s a small part of the contract’s value. Profits and losses are added or taken from your account every day.
  • Contracts expire. To keep a position, you have to roll it into the next contract.
  • You can lose more than your account balance, and your broker can come after you for the shortfall.

How futures work

Each futures contract is standardised by the exchange: it sets what’s being traded, how much, and when the contract expires. For example, the Micro E-mini S&P 500 contract on the CME exchange is worth $5 for every point of the S&P 500 index1. With the index at 5,000, one contract controls $25,000.

When you buy (go long) or sell (go short) a contract, you don’t pay the full value. You deposit initial margin, set by the exchange and your broker, often 5% to 15% of the contract’s value. At the end of every trading day, the exchange works out your profit or loss and moves cash in or out of your account. This is called daily settlement or marking to market2.

If losses take your account below the maintenance margin, you get a margin call: you must add money quickly, or the broker closes your position.

Before a contract expires, most traders close it or roll it to the next one. A few contracts end in physical delivery of the actual goods; your broker will close your position before that happens, but you need to know the dates.

What it costs

  • Commission: charged by your broker per contract, each way.
  • Exchange and regulatory fees: small fixed fees per contract.
  • Spread: usually tight on popular contracts, wider on less-traded ones.
  • Rolling costs: each time you roll to a new contract you pay costs again, and the price difference between contracts can work for or against you.
  • Data fees: live prices for some exchanges cost a monthly fee.

There’s no daily financing charge like with CFDs; the cost of holding is built into the futures price instead.

The risks

  • Leverage. Margin of 5% to 15% means a 5% to 15% move against you can wipe out your margin.
  • Daily settlement. Losses come out of your account every day. You can be forced out of a position just before it would have recovered.
  • Large contract sizes. Even “micro” contracts move by hundreds of dollars on an ordinary day.
  • Strange events. In April 2020, a US oil futures contract fell below zero for the first time, meaning holders had to pay to get rid of it. Traders who expected that “prices can’t go below zero” lost far more than they thought possible.

Rules where you live

Products, protections and tax rules differ from country to country. Here’s a summary for the main English-speaking markets. Always check your own regulator for the latest position.

US
Futures are regulated by the CFTC, and brokers must be registered with the NFA as futures commission merchants. Futures accounts aren’t covered by SIPC3. Smaller “micro” contracts have made futures more accessible to small accounts.
UK
Futures can be traded through some FCA-authorised brokers, mainly on overseas exchanges such as CME and Eurex. The CFD leverage caps and negative balance protection don’t apply to exchange-traded futures. Brokers must check that the product is appropriate for you before you trade.
EU
Exchange-traded futures (for example on Eurex) are available through some brokers under MiFID rules, which include appropriateness checks. Leverage caps for CFDs don’t apply to futures.
Australia
Futures trade on ASX 24 and through brokers regulated by ASIC.
Canada
Futures are traded through CIRO-regulated dealers, on the Montréal Exchange and on US exchanges.

Who it tends to suit

Tends to suit

  • Experienced traders with enough money to absorb large swings and meet margin calls.
  • Businesses and professionals hedging real price risk, such as a farmer locking in a crop price.

Think twice if

  • Beginners.
  • Anyone who couldn’t pay a debt to their broker if a trade went badly wrong.
  • Anyone who doesn’t know a contract’s size, value per point and expiry date before trading it.

How to get started safely

  1. Learn on a simulator or demo account first.
  2. For any contract, look up its size, value per point, margin and expiry on the exchange’s website.
  3. Start with micro contracts, and keep far more money in your account than the minimum margin.
  4. Decide your stop loss before you enter, and remember it may not protect you in a gap.
  5. Use a broker registered with your country’s regulator.

Words in this guide

Futures contract
An exchange-traded agreement to buy or sell a set amount of something at a set price on a set date.
Contract size / value per point
How much of the asset one contract covers, and how much money each point of price movement is worth.
Initial margin
The deposit needed to open a futures position.
Maintenance margin
The minimum you must keep in the account; dropping below it triggers a margin call.
Daily settlement (marking to market)
Profits and losses are added to or taken from your account every day.
Expiry and rolling
Contracts end on a set date; rolling means closing one contract and opening the next.
Hedging
Taking a position to protect against a price move that would hurt you elsewhere.

Frequently asked questions

Can you lose more than you invest in futures?

Yes. There’s no negative balance protection, so a large move can leave you owing your broker more than you had in your account.

Do I have to take delivery of oil or wheat?

Not if you close or roll your position before the delivery dates. Retail brokers usually close positions automatically beforehand, but you should know the dates yourself.

What is the difference between futures and options?

A futures contract obliges both sides to complete the deal. Buying an option gives you the right but not the obligation, and your loss is limited to what you paid for it.

Sources and further reading

Numbers in the guide, like 1, point to these sources. Rules, fees and tax change, so check the latest version before you act.

  1. What is an Index Future. CME Group Education.
  2. Basics of Futures Trading. U.S. Commodity Futures Trading Commission (CFTC).
  3. What SIPC Protects. Securities Investor Protection Corporation.
  4. Futures contract (glossary) Investor.gov (SEC).

What to read next

Back to top