Futures in detail

Remember the farmer and the bakery from course 1? The exchange turned that kind of agreement into a standard thing: the same size, the same dates, one price for everyone.

- Size. One contract is a fixed amount. On the micro futures contract on the S&P 500 index, one index point is worth $5. An index point is a change of one: it was 5,000, now it’s 5,001. With the index at 5,000, one contract controls about $25,000. - Date. A contract has an expiry date, usually once a quarter. If you want to hold longer, before the expiry you close the old contract and open the next one. This is called rolling over to the next contract. - Margin. The exchange sets it. Profit and loss are recalculated every day: if a loss has eaten part of the margin, the broker will ask you to add money. There’s no protection against going below zero like with CFDs at strictly regulated brokers: after a sharp jump, you can end up owing the broker money.