A futures contract is a standardised, exchange-traded agreement to buy or sell a set quantity of something at a set date in the future, at a price agreed now. The exchange fixes every term except price, prices move in fixed increments called ticks that are each worth a fixed number of dollars, and day traders exit by making the opposite trade (offset) long before delivery matters.
A futures contract is an exchange-standardised obligation to buy or sell a fixed quantity at a future date, and the profit or loss on it is plain arithmetic: points moved multiplied by the contract multiplier. One E-mini S&P 500 contract (ES) is $50 per index point, so a 4-point move is $200, while one Micro E-mini (MES) is $5 per point, so the same move is $20. The cash behind the position is a performance bond rather than a loan, which is why a small deposit controls a large position.
What does "standardised" actually mean?
Standardised means the exchange writes every term of the contract except the price. Futures exchanges set the contract size, delivery months, last trading day, delivery locations and acceptable grades, according to the CFTC, which leaves buyer and seller one number to agree on.
Uniformity is what makes the contract tradable rather than a private deal. Every ES contract is interchangeable with every other ES contract, so a position is closed by an equal and opposite transaction with anyone in the market, which the CFTC glossary calls offset, not by tracking down the original counterparty.
How much is one tick worth?
A tick is the smallest increment a contract's price can move, and its cash value is the tick size multiplied by the contract multiplier (the dollars per one full point of price). ES trades in 0.25 index point ticks against a CME contract unit of $50 per index point, so one tick is 0.25 x $50 = $12.50, and four ticks make a point: 4 x $12.50 = $50.
One price path splits into two account outcomes at the multiplier. A 4-point move is 4 x $50 = $200 on the ES leg and, on the MES leg with the same 0.25 tick against a contract unit of $5 per index point, 4 x $5 = $20, exactly one tenth from the same entry and the same exit.
| Contract | Unit / multiplier | Minimum tick | Tick value | Settlement |
|---|---|---|---|---|
| ES, E-mini S&P 500 | $50 x index | 0.25 points | $12.50 | Cash |
| MES, Micro E-mini S&P 500 | $5 x index | 0.25 points | $1.25 | Cash |
| NQ, E-mini Nasdaq-100 | $20 x index | 0.25 points | $5.00 | Cash |
| MNQ, Micro E-mini Nasdaq-100 | $2 x index | 0.25 points | $0.50 | Cash |
| CL, WTI Crude Oil | 1,000 barrels | $0.01 per barrel | $10.00 | Physical delivery |
| MCL, Micro WTI Crude Oil | 100 barrels | $0.01 per barrel | $1.00 | Cash |
| GC, Gold | 100 troy ounces | $0.10 per ounce | $10.00 | Physical delivery |
| MGC, Micro Gold | 10 troy ounces | $0.10 per ounce | $1.00 | Physical delivery |
Exchange specification pages are the authority and terms change, so check the current spec before sizing anything; the figures above were current at the time of writing. A micro is not a watered-down product, because it shares the underlying, the tick size, the trading hours and the order book with its full-size sibling at one tenth the size. Settlement method is the term that can differ between the two, and Micro WTI is financially settled while full-size CL is deliverable. Choosing between the index contracts is covered in ES vs NQ vs MES vs MNQ.
How does going short a futures contract work?
Selling a futures contract first is an ordinary transaction. Nothing is borrowed because nothing is owned: opening a short means taking the sell side of an obligation, and closing it means buying the same contract back, so there is no share borrow, no locate and none of the short-sale restrictions that apply to stocks.
Long and short are structurally symmetric in futures. Both sides post the same performance bond, both are marked to market daily, and both are closed the same way. A producer sells futures to lock in a price ahead of a fall, the hedging use the contracts were built for, and a day trader uses the same mechanism for minutes instead of a season.
Is futures margin a loan like stock margin?
No. Margin in futures is a performance bond, and the CFTC states that futures margins are not down payments like stock margins but performance bonds designed to ensure that traders can meet their financial obligations. No cash is borrowed, so no interest accrues on the position; the deposit is collateral held against daily mark-to-market settlement.
The deposit is small next to the value of what it controls. At an illustrative index level of 6,000, one ES contract represents 6,000 x $50 = $300,000 of notional exposure (the full value of what the contract controls), and one MES represents $30,000. An illustrative $15,000 initial margin on that ES contract would be 5% of notional, or 20:1 leverage, and a 1% index move of 60 points is 60 x $50 = $3,000, which is 20% of the deposit from an ordinary session. Initial, maintenance and intraday requirements are set out in futures margin explained.
Because positions are marked to market daily against a fraction of notional, a futures account can be driven to a debit balance that the trader still owes, particularly in a gapping market. The small intraday margin quoted by retail brokers is a broker concession rather than an exchange requirement, and it reverts to the full exchange amount near the daily settlement cut-off.
Why do futures expire, and which month should you trade?
Futures expire because each contract names a specific delivery month, the month in which it matures and is settled. Equity index contracts such as ES and NQ expire quarterly on the third Fridays of March, June, September and December and settle for cash, meaning the final obligation is a cash payment based on the index level rather than any transfer of goods.
Liquidity does not wait for the expiry date. Volume and open interest (the count of contracts still held open) migrate from the expiring month into the next quarterly month on the Thursday eight days before the third-Friday expiry, so a trader holding the old month closes it there and reopens the position in the new one, and anyone left in the old contract is trading a thinning book. Trade the month that has the volume rather than a calendar rule, as set out in futures contract rollover.
Settlement type changes how serious a missed expiry is. A stale cash-settled index position settles to a final value and nothing is delivered, but CL and GC are physically deliverable, and brokers impose their own earlier liquidation deadlines on them.
What does a beginner need to decide before the first trade?
Four decisions, each with a full answer of its own:
- Which contract. Start with one micro on one market and stay there long enough to learn its behaviour. The instrument comparison covers speed, range and cost differences.
- How much capital. Margin sets the floor, but the stop distance you actually trade sets the real requirement. See how much money you need to day trade futures.
- Which orders. A bracket that attaches a stop and a target on entry removes the worst decisions from the worst moment. See futures order types.
- What it costs. Commissions, exchange fees and data are charged per contract and per side, which bites at micro tick values. See futures trading costs.
One rule that does not apply here is the $25,000 pattern day trader minimum, which is a FINRA equities rule and leaves futures accounts outside the pattern day trader rule.
How much of a small account does one contract actually risk?
Position size, not the instrument, sets the risk. One ES contract with a 10-point stop risks 10 x $50 = $500, which on a $5,000 account is 10% of the balance on a single trade. The same stop in MES risks 10 x $5 = $50, or 1% of that account.
The market cannot be made smaller, but the contract can.
Sizing works backwards from the risk budget. A trader willing to risk 1% of a $5,000 account has $50 to spend on the stop; a 10-point MES stop costs 10 x $5 = $50, so the position is $50 / $50 = 1 contract, while ES would need $500 for the identical stop and rounds to zero contracts. The account balance chooses the contract, which argues for micros and for micro-friendly funded account programmes if you want to trade less of your own capital.
The honest tradeoff is that the leverage making futures capital-efficient is the same leverage that lets an undersized account lose a large share of itself in a move nobody would call unusual. No reliable public figure exists for how many beginners make money in US futures: brokers and exchanges do not publish per-trader outcomes, prop firms do not publish audited pass or payout rates, and the percentages circulating online come from other markets or from self-selected samples. Copying one account's orders across several accounts does not change that arithmetic, because a copier multiplies whatever the master does, losing trades included, so it belongs after a method has survived on one account rather than before.
Frequently asked questions
Who is on the other side of my futures trade?
The clearing house. Once two orders match, the exchange's clearing house steps between buyer and seller and becomes the counterparty to each, which is why a position can be closed against any other participant rather than the person who originally took the other side.
What is the difference between futures and options on futures?
A future is an obligation, and an option on a future is a right. Buying an option gives the holder the choice to take a futures position at a set strike price, for a premium paid up front, while both sides of a futures contract are committed from the moment it is opened.
What does marked to market daily actually mean?
Marked to market means open positions are revalued at the daily settlement price and the gain or loss moves in cash that same day. Nothing sits as an unrealised paper figure, which is why a losing position can trigger a margin call before the trader closes it.
Are futures riskier than stocks for a beginner?
Futures are riskier per dollar deposited rather than riskier by nature. A single contract controls far more value than the cash behind it, so the same account can be damaged much faster, which is a sizing problem rather than an argument against the market.
Do futures pay dividends or interest while you hold them?
No. Holding an index futures position pays no dividends and earns no interest, because the position is a contractual obligation rather than shares, and expected dividends and financing costs are already reflected in the futures price relative to the index.
How many hours a day do index futures trade?
Nearly around the clock on weekdays. CME equity index futures run from Sunday evening to Friday afternoon US Central time with a short daily break, which is one reason overnight risk on a held position is real rather than theoretical.
Is $500 enough to start trading futures?
$500 is enough to place a trade in some micro contracts but rarely enough to trade well. One MNQ trade with a 10-point stop risks 10 x $2 = $20, which is 4% of a $500 account, so an ordinary losing streak consumes the balance before any edge has room to show.
How is a futures contract different from a CFD?
A futures contract is exchange-traded and centrally cleared, while a CFD is a private contract with a broker. Futures specifications, tick values and prices are the same for every participant, whereas a CFD's pricing and terms are set by the counterparty, and CFDs are not offered to US retail traders.
What is a funded futures account and how does it relate to all this?
A funded account is an arrangement where a firm sets an evaluation, then lets a trader use the firm's capital under fixed rules and share the profits. Contract mechanics do not change inside one, so an MES tick is still $1.25, and only the rules on drawdown, position size and payouts differ.