Futures

Futures are one of the most powerful tools in the financial market, allowing traders to profit from price fluctuations with relatively small initial investments. But behind the potential for high returns lie equally significant risks. Let’s break down how futures work, who uses them, and how to avoid the most common pitfalls.

A futures contract is a commitment to buy or sell an asset at a predetermined price on a specific date in the future. Unlike stocks, futures don’t grant ownership of the actual asset (like a barrel of oil or a share of Apple) — they simply lock in the terms of the transaction.

Key features:

• Standardization — the exchange defines the contract’s terms, including expiration dates, volume, and specifications.
• Margin trading — to open a position, you only need to post collateral (known as margin), which allows you to use leverage.
• Obligation to execute — unlike options, futures contracts require the transaction to be carried out at expiration.

Futures are a professional-grade instrument that demands a deep understanding of the market and strict discipline. They offer the potential for substantial profits — but they don’t forgive mistakes. Before you start trading, make sure you understand how the contracts work, test your strategy on a demo account, and clearly define your risk tolerance.

The golden rule: Never risk more than you’re willing to lose.