What Are Futures?
Futures are contracts in which a buyer and seller agree to make a transaction at a predetermined future date and at a set price. By entering into a futures contract, both parties lock in the terms today for an exchange that will take place later. Futures are traded on exchanges in standardised form, covering assets such as commodities, currencies, indices and more.
How Futures Work
When a futures contract is agreed, the buyer commits to purchase, and the seller to deliver, a set quantity of an asset at the agreed price on the expiry date. Because they are standardised and traded on exchanges, futures are widely used both to manage exposure to price changes and to speculate on the direction of a market. Most contracts are closed out before delivery.
Futures Versus Forward Contracts
| Aspect |
Futures |
Forward Contracts |
| Terms |
Standardised by an exchange |
Customised between parties |
| Traded |
On an exchange |
Over the counter |
| Counterparty risk |
Reduced via a clearing house |
Between the two parties |
What to Weigh with Futures
Futures are commonly traded with leverage, which magnifies both gains and losses and means losses can exceed the initial deposit. Prices can move sharply, and positions may need additional margin if the market moves against them. The set expiry date also means timing matters, as contracts must be managed before they close.
The Role of Futures
Futures give market participants a standardised way to agree prices for the future, used both to manage exposure and to trade on expected moves. Understanding how they differ from forward contracts helps clarify their standardised, exchange-traded nature. Across VT Markets instruments, familiarity with futures supports a broader understanding of how derivatives work.
Risk Warning:Trading CFDs involves significant risk and may not be suitable for all investors. Losses can exceed your initial deposit. Please ensure you fully understand the risks involved before trading.
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