What is futures trading?

Futures trading refers to buying or selling an asset through a contract that obligates both parties to complete the transaction at a predetermined price and date in the future.
Unlike spot trading, futures trading does not involve immediate ownership of the asset.

Futures are commonly used in organized markets and are based on standardized contracts.

What futures trading means

In futures trading, traders agree on a price today for an asset that will be settled at a future date.
The contract defines the asset, quantity, and settlement date in advance.

The value of the futures position changes as market prices move.

How futures trading works

Futures contracts are traded on regulated markets and are marked to market regularly.
Traders do not need to hold the asset itself; instead, they manage the contract until it expires or is closed.

Most futures positions are closed before the settlement date.

Why futures trading is used

Futures trading is often used to manage price risk or to gain exposure to future price movements.
It allows participants to plan ahead by locking in prices.

This structure makes futures different from direct asset trading.

Risks and key considerations

Futures trading involves market risk, and price movements can result in gains or losses.
Because contracts are time-based, unfavorable price movements can affect positions even without immediate ownership.

A common misunderstanding is assuming futures trading is the same as spot trading.

Summary

Futures trading is based on contracts that settle at a future date rather than immediate exchange.
It provides exposure to future price movements but involves risk and requires understanding of contract-based trading.