A standardized agreement to buy or sell an asset at a predetermined price on a specified future date. Futures contracts are traded on exchanges and represent assets such as commodities, indices, or financial instruments.
Why It Matters
- 1Futures contracts are the core instruments traded in prop firms.
- 2Understanding how they work is essential for managing positions, margin, and risk in a structured and regulated market.
Example
- 1A trader buys an index futures contract at 4,500, agreeing to the price set today.
- 2As the market moves, the value of the contract changes, allowing the trader to profit or lose based on price movement.
Common Mistakes
- ✖Thinking you must hold the contract until expiration
- ✖Ignoring contract specifications like tick size and value
- ✖Not understanding leverage and margin requirements
- ✖Confusing futures contracts with stocks or spot trading