Futures Contract
Also known as: futures, futures contracts, commodity futures, exchange-traded futures
What is it?
A futures contract is a standardized, exchange-traded agreement to buy or sell a fixed quantity of an asset at an agreed price on a specific future date. Standardized is the word that matters. You do not negotiate the size - the exchange fixes it. One crude oil contract (CL) always covers 1,000 barrels, its smallest price increment is $0.01, and that increment is worth exactly $10.00.
| Contract spec | Crude oil (CL) | E-mini S&P 500 (ES) | Euro FX (6E) |
|---|---|---|---|
| Contract size | 1,000 barrels | $50 x index level | 125,000 euros |
| Smallest price move | 0.01 | 0.25 index points | 0.00005 |
| What that move is worth | $10.00 | $12.50 | $6.25 |
| Ticks needed to make $500 | 50 ticks ($0.50) | 40 ticks (10 points) | 80 ticks |
| Typical initial margin | about $6,000 | about $13,000 | about $2,400 |
| Expiry cycle | Monthly | Quarterly | Quarterly |
| Settles as | Physical delivery | Cash | Physical delivery |
So buying one contract at $78.40 and selling it at $79.10 is 70 ticks at $10, or $700, and you knew both of those numbers before you clicked buy. To hold that $78,400 of exposure the exchange asks for roughly $6,000 of margin, not the full value. Two things separate futures from a broker-issued product. The first is the clearing house: it sits between buyer and seller, marks every position to market at the end of each session, and collects or pays the difference in cash daily.
The second is expiry. Every contract has a last trading day, so a position is never open-ended - you either close it, roll it into the next month, or let it settle.
Why it matters: Contract size and tick value are fixed and published, so you can price exactly what one point of movement costs you before the position is open.
Notional value = contract size x price; P&L = ticks moved x tick value x contracts
Contract size and tick value decide what a single point of movement costs, so misreading either one is the fastest way to size a position wrong.
Real-world example
One CL crude contract covers 1,000 barrels, so a move from $78.40 to $79.10 is 70 ticks at $10 each - $700 per contract, held on roughly $6,000 of posted margin.
How SignalBots handles it
SignalBots publishes each signal as an entry, stop and target in price terms, so you convert it to per-contract risk with your instrument's own tick value before sizing the trade. See /risk-warning.
Pro tip
Check the tick value before you check the margin. A contract you can afford to open is not the same as a contract whose per-tick swing fits your risk budget.
Common pitfalls
Treating margin as the cost of the position. You control the full notional value, so a move of a few percent against you can exceed the deposit you posted.
Frequently asked questions
Do I need to take delivery of the asset?
Only if the contract settles physically and you hold it past its first notice day. Index and most financial futures settle in cash, and retail brokers usually force-close deliverable contracts before that date. Check the settlement method per contract, never assume it.
How is a futures contract different from a CFD?
A future is standardized and cleared by an exchange, with a fixed size and an expiry date. A CFD is a private contract with your broker, in any size you like, with no expiry but a nightly financing charge. The price exposure is similar; the counterparty and the running costs are not.
What does the initial margin actually pay for?
Nothing - it is your own money, ring-fenced as collateral and released when the position closes. It is sized so the clearing house is covered against a typical day's move, which is why it rises when volatility rises.
Why does the next contract month trade at a different price?
Because carrying the asset to that later date costs money in storage, insurance and financing, or because supply is tight today. The resulting curve shape is called contango or backwardation, and it decides what rolling a position costs you.
Are futures riskier than trading the spot market?
The instrument is not inherently riskier, but the built-in leverage makes it easy to hold far more exposure than the account can absorb. Size from the notional value and your stop distance rather than from the margin, and remember your capital is at risk.
Trading involves substantial risk of loss. Historical and backtested results do not guarantee future performance. Read the full risk warning.
