Futures Contract Explained: What Is a Futures Contract?
Date Modified: 5/10/2026
Though it might sound paradoxical due to its ‘futuristic’ name, Futures trading is actually arguably one of the oldest forms of trading. Some sources even claim that Futures can be traced back to Japan’s Dojima Rice Exchange in 1697, which is widely regarded as the precursor to present-day Futures markets.
But what exactly is Futures trading? What are Futures contracts? How do you trade Futures? What are Futures markets, and what changes have this ancient form of trading undergone in the past couple of years?
TL;DR
- Futures contracts are agreements between buyers and sellers to trade assets at predetermined prices and dates in the future
- Margin trading allows you to control large positions with smaller capital outlay
- Multiple markets available, including commodities, currencies, indices, and cryptocurrencies
- Key advantages include leverage, liquidity, and hedging capabilities
- Main risks involve leverage amplifying losses and expiration dates
- Minimum deposit starts from $100 with Plus500 for micro Futures contracts
- Demo account available to practice Futures trading with virtual funds
What Are Futures Contracts and How Do Futures Work?
Futures are financial contracts in which two parties, usually a buyer and seller, agree to buy or sell (transact) a financial asset like a commodity, currency, or index, at a fixed price and time in the future². In other words, two parties agree that one should buy a future's underlying asset and the other should sell it later at a specific price and time in the future, regardless of the prevailing market price at the time.
Additionally, when entering into a Futures contract, there is no need to pay the full price of the underlying asset in advance. Instead, one must buy a fraction of the cost, known as margin, which can vary from one Futures provider to another depending on the underlying financial asset, among other factors.
The standardised nature of Futures contracts ensures transparency and reduces counterparty risk, as exchanges act as intermediaries between buyers and sellers. This standardisation covers contract size, delivery dates, quality specifications, and settlement procedures.
What Is a Futures Market?
Futures markets are exchanges in which participants buy or sell an underlying asset on a specific date in the future. The Futures market is multifaceted and diverse as it allows access to a myriad of global financial markets ranging from commodities to cryptocurrencies, and Forex to interest rates and indexes.
Additionally, as mentioned above, the Futures market is one of the oldest markets to date, and they even go to 17th-century Japan. Nonetheless, the first recollection of a modern Futures market similar to the one we know today goes back to 1840s Chicago, whereby the city became the hub of modern Futures Trading due to the Chicago Mercantile Exchange (CME), which is still regarded as the world's most influential Futures Exchange. Other prominent examples of a Futures market include the New York Mercantile Exchange (NYMEX), and the Chicago Board of Trade (CBOT), among others.
Plus500’s Futures trading platform allows traders access to some of the biggest Futures exchanges in the world, like:
- EUREX
- CME
- COMEX
- NYMEX
- CBOT
- MGEX
- ICE.
Are Futures a Type of Derivative?
Yes. Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. The reason Futures are considered derivative contracts is that they derive their value from the underlying asset. That is to say that the Futures’ value depends on the underlying asset.
This derivative nature means that futures contracts can be used for:
- Speculation - potentially profiting from price movements without owning the underlying asset
- Hedging - protecting against adverse price movements in physical holdings
- Arbitrage - exploiting price differences between markets
Types of Futures Contracts
Futures contracts span numerous asset classes, each serving different market participants and investment strategies:
Commodity Futures
Commodity Futures represent agreements to buy or sell physical goods such as:
- Agricultural products - wheat, corn, soybeans, coffee, sugar
- Energy commodities - crude oil, natural gas, heating oil, gasoline
- Precious metals - gold, silver, platinum, palladium
- Industrial metals - copper, aluminium, zinc, nickel
Financial Futures
These contracts are based on financial instruments and include:
- Index Futures - S&P 500, NASDAQ 100, FTSE 100
- Currency Futures - EUR/USD, GBP/USD, USD/JPY
- Interest rate Futures - Treasury bonds, Eurodollar
- Cryptocurrency Futures - Bitcoin, Ethereum
Pros and Cons of Futures Trading
Advantages of Futures Trading
As with every type of trading, Futures contracts have their own pros and cons. Perhaps one of the most important advantages of Futures trading is the fact that Futures give traders access to a plethora of financial markets from cryptocurrencies to commodities and forex to interest rates and indices. Moreover, through futures, traders and investors can speculate on the price movements of the underlying instruments, thus potentially benefiting from price swings depending on their position.
Key benefits include:
- High liquidity - Major Futures contracts offer excellent liquidity, especially commodities, forex, and indices
- Leverage capabilities - Control larger positions with smaller capital requirements
- Hedging opportunities - Protect against adverse price movements in other investments
- Price discovery - Futures markets help establish fair market prices for underlying assets
- Standardisation - Contracts have standardised terms, reducing counterparty risk
- Extended trading hours - Many Futures markets operate nearly 24 hours a day
- Margin efficiency - Lower margin requirements compared to buying underlying assets outright
Futures contracts can be used to help protect companies against adverse price movements by hedging raw materials or products. Moreover, Futures do not require one to pay the full price of the underlying asset in advance, but rather, pay a certain amount called margin.
Disadvantages of Futures Trading
Nonetheless, the same aforementioned advantages can act as potential pitfalls as well.
Primary risks include:
- Leverage amplification - While leverage may increase gains, high leverage may also magnify losses if prices move against predictions
- Expiration dates - Contracts have fixed expiration dates, and prices may become less attractive as expiration approaches
- Opportunity cost in hedging - Hedging with Futures contracts may cause companies to miss out on beneficial price movements
- Margin calls - Adverse price movements can trigger margin calls requiring additional capital
- Market volatility - Rapid price changes can lead to significant losses in short timeframes •
- Complexity - Understanding contract specifications and settlement procedures requires education
The result may be that a Futures contract even becomes valueless at some point before expiration, particularly for out-of-the-money options on futures.
Why Trade with Plus500?
Aside from the aforementioned advantages, Plus500 offers its traders exclusive perks. Starting at a minimum of $100, Plus500 provides traders with access to the Futures market with attractive and low trading fees. In addition, Plus500 traders get to enjoy a free and unlimited demo account mode, which allows them to test the waters of Futures trading in real market conditions without spending their real money.
Plus500 advantages include:
- Low minimum deposit - Start trading with just $100
- Comprehensive platform - Access major global Futures exchanges
- Risk management tools - Stop-loss and take-profit orders available
- Educational resources - Extensive Trading Academy materials
- 24/7 customer support - Dedicated customer service for inquiries
- Regulatory compliance - Authorised and regulated in multiple jurisdictions
Plus500 also offers 24/7 dedicated customer service for any enquiries or concerns, ensuring traders receive support when needed.
How Much Money Do You Need to Trade Futures?
There's no rule of thumb when it comes to the money needed to trade futures, as the amount required depends on the platform and product in question. Using Plus500's trading platform, for example, you can start trading Futures with a deposit as little as $100 for micro contracts.
Typical margin requirements vary by contract type:
- Micro E-mini Futures - $100-$500 per contract
- Standard commodity Futures - $2,000-$10,000 per contract
- Currency Futures - $1,000-$5,000 per contract
- Index Futures - $5,000-$25,000 per contract
You may also test the waters of Futures trading in real-market conditions using Plus500's free and unlimited demo account, which provides virtual funds for practice trading.
Getting Started with Futures Trading
For beginners considering Futures trading, following a structured approach is essential:
Educational Foundation
- Study Futures trading terminology
- Understand margin requirements and risk management
- Learn about different Futures contract types and specifications
- Practice with demo accounts before using real capital
Market Analysis
- Fundamental analysis - Economic indicators, supply and demand factors
- Technical analysis - Chart patterns, support and resistance levels
- Market sentiment - Positioning reports and news events
Trading Plan Development
- Define clear entry and exit criteria
- Establish risk management rules
- Set realistic profit targets and loss limits
- Maintain trading discipline and emotional control
Conclusion
Futures trading represents one of the most established and liquid segments of global financial markets, offering opportunities for speculation, hedging, and portfolio diversification. While the leverage and flexibility of Futures contracts provide significant advantages, they also amplify both profits and losses, making proper risk management essential.
Whether you're interested in commodity futures, currency futures, or index futures, understanding contract specifications, margin requirements, and market dynamics is crucial for success.
Plus500's platform offers accessible entry into Futures trading with competitive fees, comprehensive educational resources, and robust risk management tools, making it suitable for both beginners and experienced traders.