Most people hear “futures contracts” and immediately picture Wolf of Wall Street types yelling at screens, sweating through dress shirts and flipping over soybean prices. But here’s the thing, futures aren’t just for hedge funds or institutional power players. They’re for anyone who wants to bet smart on where markets are headed, hedge against volatility or finally understand what financial TV is always discussing.
If you’ve ever wondered how traders make money off oil prices or why some people root for the stock market to crash (besides general chaos), this is your crash course.
What Are Futures Contracts?
In plain English, a futures contract is a legally binding agreement between two parties to buy or sell an asset like oil, gold, corn or even the S&P 500 at a predetermined price on a specific date in the future.
You’re not buying the asset itself. You’re buying the obligation to buy or sell it later at today’s agreed-upon price. That means you profit if the price moves in your favor before the contract expires. If it moves against you, well, not so much.
This is why futures are popular with speculators (traders trying to profit off price swings) and hedgers (businesses trying to lock in costs so they don’t get blindsided by market chaos). If you’re looking to dive into the mechanics of trading futures, check out Benzinga’s guide to futures trading.
How Do Futures Contracts Work?
Every futures contract has a buyer and a seller. The seller agrees to deliver the underlying asset and the buyer agrees to pay the agreed price whether the market moves higher or lower in the meantime.
Each contract is standardized. That means it has specific terms: what asset is being traded, how much of it and the contract’s expiration date (usually tied to a specific month).
Most futures traders never actually want to take delivery of the underlying asset. If you buy a crude oil futures contract, you don’t need to worry about 1,000 barrels of oil showing up at your front door. These contracts are almost always closed out or settled in cash before delivery.
Futures are also traded on margin, meaning you only need to put down a fraction of the total value to open a position. Leverage allows you to control a larger position with relatively small capital, which can massively amplify gains and losses.
Platforms like Plus500 give traders access to major futures markets with intuitive tools and built-in risk controls, making it easier to manage leveraged positions without flying blind.
Types of Futures Contracts
Futures aren’t just for oil and gas. Here’s a breakdown of the most common types you’ll see in the wild:
Commodity Futures: These are the classics like oil, gold, silver, wheat, coffee and natural gas. There’s probably a futures contract if it’s grown, mined or pumped.
Index Futures: Bet on entire markets like the S&P 500 or Nasdaq. Perfect for traders with macro views or those hedging stock portfolios.
Currency Futures: Forex traders can use futures to bet on currency pairs like EUR/USD or hedge exposure to international assets.
Interest Rate Futures: Used to speculate on or hedge against rate changes. Common in institutional finance but useful for advanced traders looking to trade bond market expectations.
Cryptocurrency Futures: Yes, even Bitcoin and Ethereum now have regulated futures markets. Wildly volatile but increasingly popular with traders seeking crypto exposure without holding the actual tokens.
Energy Futures: Includes oil, gasoline, natural gas and heating oil. Highly sensitive to geopolitical risk and seasonal demand.
For a deeper dive into commodities and how they fit into a trading portfolio, explore Benzinga’s commodities explainer.
Why Traders Use Futures Contracts
Futures are functional and here’s why traders love them.
Speculation: Futures let you profit from price movement in either direction, up or down. In a bear market, futures are one of the cleanest ways to short an asset without borrowing shares or dealing with restrictions.
Hedging: Farmers, oil companies, airlines and manufacturers use futures to lock in prices and reduce the risk of major losses due to price fluctuations.
Leverage: With margin, a small investment controls a much larger position. That means greater profit potential and higher risk.
Liquidity: Popular futures markets have deep liquidity, which means tighter spreads, faster execution and plenty of volume to trade in and out quickly.
Diversification: Futures open the door to assets not usually accessible to retail traders. You can trade metals, grains and currencies from the same platform you use for equities.
Need a visual on how leverage works in practice? Check out Benzinga’s margin trading breakdown.
The Risks of Futures Contracts
Now for the part no one likes to hear but everyone needs to know. Futures can make you money fast but they can also lose you money even faster if you’re not careful.
Leverage Cuts Both Ways: A 5% move in your favor could be a win. A 5% move against you could trigger a margin call and wipe your position.
Volatility Is the Norm: Futures markets respond to weather, wars, economic reports and central bank comments. Expect big swings and unexpected reversals.
Obligation to Perform: Unless you exit the contract or it’s cash-settled, you must fulfill your side of the agreement legally.
Margin Calls Are Real: If your account drops below required levels, you must deposit more cash or get liquidated. This isn’t Monopoly money. You need to manage it actively.
Want to protect yourself from blowing up your account? Start with Benzinga’s guide to risk management.
Futures for the Bold
Futures contracts are one of the most flexible, high-impact tools in modern trading. They offer big upside, strategic utility and access to asset classes you can’t touch with a basic stock portfolio. But they’re not toys. Futures demand a plan, a risk strategy and some emotional discipline.
Whether you’re hedging a portfolio, playing macro trends or trying to ride volatility like a rodeo bull, futures can get you there, just make sure you know what you’re doing.
Want to see it in action? Platforms like Plus500 offer futures trading with built-in risk tools and real-time market access so you’re not guessing your way through leveraged trades.
Frequently Asked Questions
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A futures contract is a legally binding agreement to buy or sell an asset – like oil, gold or the S&P 500 – at a set price on a future date. Traders use these contracts to profit from price changes or hedge against volatility. Most contracts are closed or settled in cash before expiration and the majority of traders never take physical delivery of the asset.
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It’s called a futures contract because the trade is settled at a predetermined price on a specific date in the future. Instead of buying an asset today, you agree to transact it later, which helps with speculation and risk management in volatile markets.
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Futures contracts are used by both speculators and hedgers. Traders use them to bet on price movements in either direction while businesses like farmers, airlines and manufacturers use them to lock in prices and protect against unpredictable market swings. The leverage and liquidity also make them attractive tools for active traders seeking market exposure beyond traditional stocks.
