__The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.__

Welcome to the futures market, a dynamic and essential part of the global financial system. Futures are contracts between two parties to buy or sell something at a set price on a specific date in the future. Hence the name, “futures”. They've been around for a long time, helping businesses and investors manage risk. In fact, that’s why futures exist - to help businesses, farmers, merchants and investors manage the risk of changing prices.

If you’ve already traded stocks, exchange traded funds (ETFs), or [options](https://robinhood.com/gb/en/learn/options-trading-essentials/), many of the basics will be familiar to you. For example, futures trade on exchanges, have bid and ask prices and can be bought or sold. For every market participant looking to manage risk, there’s usually a trader or “speculator” on the other side looking to take risk. Futures traders rely on a combination of market analysis, risk management and quick decision-making to speculate on anticipated price movements.

Like other forms of active trading, the goal is typically the same - to buy low and sell high. Or, if you’re feeling bearish, sell high first, and then buy low later. While there are similarities, futures aren’t the same as stocks or options and have different rules and mechanisms that facilitate their trading, among other key differences. Because futures are powerful, levered products they can lead to both large profits and large losses. As a self-directed trader, be sure to educate yourself before making your first futures trade. As you begin your journey, we’re here to help.

## The history of futures markets

Futures markets have a long history, dating back to ancient times when farmers and merchants used them to lock in prices for crops, protecting themselves from price fluctuations. In the 17th century, Japan developed an early version of futures contracts for rice traders, allowing them to buy or sell at a set future price. This helped reduce risk for both buyers and sellers by ensuring stable prices.

The modern futures market took shape in the mid-19th century in Chicago, where the Chicago Board of Trade (CBOT) was founded in 1848. It allowed farmers to secure income by locking in prices for their crops before harvest, and buyers gained confidence in supply and pricing. Over time, the market grew beyond agriculture, encompassing commodities and even financial instruments like stock indices and interest rates.

In 2007, the Chicago Mercantile Exchange (CME) merged with the Chicago Board of Trade (CBOT) to create the CME Group. This was followed by the acquisition of the New York Mercantile Exchange (NYMEX) and the Commodity Exchange (COMEX) in 2008, which allowed the CME Group to expand the trading of commodities like energy, metals and agriculture. In recent years, the CME Group has expanded into cryptocurrency futures, offering Bitcoin and Ether contracts.

Today, futures trading is mostly electronic, making futures markets more accessible and efficient worldwide. Futures continue to play a vital role in the global economy, providing businesses and investors with a platform to manage risk and hedge against price changes. While it has expanded in scope, the core purpose remains the same - helping people plan for the future by reducing uncertainty and stabilising prices.

## What are futures?

Futures are exchange-traded contracts that represent agreements to buy or sell an asset at a specific price at a future date. Contracts are standardised in terms of the contract size, expiration date and hours of trading, and are available on a variety of different asset classes. These are called contract specifications, or specs, and are important to know before you trade.
WTI Crude Oil futures (/CL), for example, represent an agreement to buy or sell 1,000 barrels of crude oil. If oil futures are currently trading for $80 per barrel and a trader believes prices will move higher, they might buy the futures contract. If they think the price of crude oil will fall, they could sell a futures contract. At expiration, the buyer would pay cash and the seller would deliver the crude oil through methods prescribed by the futures exchange at the previously agreed upon price of $80, no matter where the current market price (also known as the “spot” price) of oil is.

![futures prices](//images.ctfassets.net/lnmc2aao6j57/3aqiThvAMKCCutnpMuKd8y/5f299386ab2378d70966499a2e282cc7/futures_prices.jpg)

While the idea of taking delivery of 1,000 barrels of crude oil might sound intimidating (nobody wants that in their backyard), in practice, most futures traders have no intention of taking or making physical delivery at expiration. In fact, many futures brokers don’t even allow their customers to do so. Only a small fraction of market participants, known as “commercials”, such as businesses, commodity brokers, and farmers actually use futures contracts to facilitate the delivery of goods and commodities.

It’s also worth noting that futures aren’t options and options aren’t futures. While both types of contracts have expiration dates, futures are a binding agreement to purchase or sell an asset, whereas options provide the buyer the right, but not the obligation to act. Futures do not have strike prices, [implied volatility](https://robinhood.com/gb/en/learn/articles/volatility-explained/) or greeks. That said there are options on futures contracts, but they aren’t the same as the underlying futures contracts themselves.

## What’s the goal of trading futures?

Trading futures shares several key similarities with stock trading. In both cases, the goal is to open a position and close it at a profit, whether by buying low and selling high or selling high and buying low. This core strategy mirrors stock trading, but futures come with distinct features, such as contract expiration dates and the potential for leverage, which can amplify both gains and losses. Despite these differences, the objective remains the same: capitalising on price movements to generate profit.

However, unlike stock investing, where assets are often held for the long term, futures trading typically focuses on short to medium-term price movements. Futures contracts aren’t designed as long-term buy-and-hold assets, as they eventually expire. The use of leverage in futures trading also introduces a level of risk that may be unfamiliar to stock investors, making effective risk management a crucial part of any successful futures trading strategy.

## Why trade futures?

Futures can offer a number of advantages to traders and investors. While not an exhaustive list, here are some of the advantages of using futures contracts:

1. __Direct exposure to an underlying asset__: Compared to stocks or ETFs, futures provide more direct exposure to specific assets like metals, energy and currencies. For example, shares of an oil company will likely react to changes in oil prices, but won’t move dollar-for-dollar with the underlying price of oil. Not to mention, there are other considerations for why the stock price of an oil company would move up or down.
2. __No pattern-day trading (PDT) rules__: Stock and options traders who do four or more day trades in a five trading-day period are subject to PDT rules and are required to keep a minimum account balance of $25,000 or more. With futures, there are no limits on day trading.
3. __Leverage__: Because futures trading requires a smaller upfront cost, you can leverage more of your money to trade them than you can with stocks. This allows you to control larger amounts of the underlying asset with a smaller amount of your own money. Note: this is also one of the risks when trading futures as leverage can amplify losses as well.
4. __Liquidity__: Futures are a global marketplace and trade nearly 24 hours a day, Sunday to Friday. As a result, many futures contracts have high liquidity, allowing for efficient trading and tight bid-ask spreads.
5. __Go long or short__: Traders can buy futures when they expect the price of the contract to move higher and sell short when they expect it to fall. While stock traders can also sell stock short, brokerages may charge interest to borrow stock for short selling and the stock also has to be available to borrow, which may not always be the case. The so-called borrowing rate doesn’t apply to shorting futures contracts.
6. __Capital efficiencies__: Margin requirements to open a futures position are typically 3-12% of the contract’s notional value, allowing traders to more efficiently use their trading capital. This is the source of futures leverage.
7. __Portfolio diversification__: In addition to stock indices, futures are available for assets like energy, currencies, metals and crypto, which offers the ability to trade asset classes that aren’t necessarily available on the stock market.
8. __Standardisation and regulation__: Futures trade on regulated futures exchanges as standardised contracts, which means the terms of contracts are determined by the exchange, and investors know exactly what terms they’re agreeing to.

## What are the risks of futures?

While futures have many advantages over other asset classes, they also have trade-offs and come with plenty of risks. While not an exhaustive list, here are some of the cons of using futures contracts:

1. __Leverage__: Yes, this isn’t a typo. Leverage can be both an advantage and a risk. The ability to generate relatively large percentage gains on small percentage moves in a commodity or other asset introduces the potential for large profits as well as large losses.
2. __Risk of losses__: When trading futures, you can lose more money than your initial investment, known as the initial margin requirement. In the event that trading losses trigger a futures margin call, you’ll be required to deposit more money or close your position. If you fail to meet your margin call, your broker might close part or all of your position.
3. __Futures ≠ ownership__: When you buy a stock, you purchase a share of the company's equity and may receive dividends and voting rights, which isn’t the case with futures.
4. __The learning curve__: It can take some time to get familiar with the different futures products. There’s a learning curve to futures trading because it requires an understanding of all the contract specs that go along with a specific contract.
5. __Less flexibility__: Compared to options, strategies with futures are more limited. Options can be used in a variety of ways: to profit from upswings, declines, sideways markets, changes in volatility, or time decay, but come with complexities of their own.

## What are the steps to becoming a futures trader?

__Step 1__: Learn the basics. Start by understanding how futures work, including key concepts like leverage, margin, contract sizes, expiration and the risks involved. You can find educational resources here on Robinhood Learn and on our [YouTube channel](https://www.youtube.com/@Robinhood_UK). In addition, please reach out to our [support teams](https://robinhood.com/gb/en/support/) with any questions you may have.

__Step 2__: Identify a market and futures contract that interests you. Futures can be traded on a variety of assets like commodities (oil, natural gas, gold, silver, etc.), stock indices, crypto and currencies. Decide which market you want to specialise in based on your interests and knowledge. While stock traders often focus on many individual companies, futures traders are more likely to specialise.

__Step 3__: Open your futures account. Trading futures requires an approved trading account with a futures broker.

__Step 4__: Develop a game plan. It’s important to develop a trading plan before you make your first trade. Create a strategy that outlines your goals, risk tolerance and methods for analysing the market. This will likely include risk management techniques in an attempt to protect against large losses. Are you trading off news events, or charts, or a combination of both? If you know when to open a trade, do you know how to manage an open position, and do you have a plan for when to close it? All important questions you should ask yourself before you make your first trade.

__Step 5__: Learn the contract specs and understand the futures margin requirement. Knowing the key details of the contract that you want to trade and the margin requirements is a crucial step in trading futures. Each futures contract has its own contract specifications and margin requirements and, as you move from one contract to the next, you’ll need to be familiar with the particulars of that new contract.

__Step 6__: Take your time, start small. Don’t rush into trading a large position. Futures are leveraged products and even a single contract can be a “big” position. Look for contracts that suit your risk tolerance and trading plan. This helps you manage risk and learn from real market experiences before increasing your risk.

__Step 7__: Monitor, adapt and stay informed. Continuously track your trades, review your performance and adjust your strategy as needed. Futures markets can be volatile, so staying flexible and learning from each trade is important. Follow news and updates on the markets you’re trading, as futures prices are often influenced by current events, economic reports and global market conditions.

__Step 8__: Keep learning. The best traders continually seek knowledge and understanding. By following these steps and gaining experience, you can progressively become a skilled futures trader. The best traders learn something new each day.

## Takeaway

The futures market plays a key role in the global economy, offering traders and investors opportunities to profit from price movements and manage risk. Each futures contract is standardised and allows you to buy or sell an asset at a set price on a future date. Most futures traders aren’t looking to take ownership of an underlying asset. Instead, they’re often looking to buy futures low and sell high or sell high and buy low. While futures can offer benefits like leverage, liquidity and nearly 24-hour trading, futures trading comes with risks such as the potential for large losses due to high leverage. To succeed as a futures trader, it’s important to educate yourself on how futures work, develop a solid trading plan, start small and continually monitor and adjust your strategy. Understanding the differences between futures and other assets, along with their associated risks and rewards, is essential for long-term success.

__Important information__

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Futures are complex products with a high risk of losing money rapidly due to leverage. They’re not suitable for all investors. Before you invest, you should make sure you understand how futures work, what the risks are of trading futures and whether you can afford to lose more than your original investment.  Please review the [Futures Risk Disclosure Statement](https://docs.google.com/document/d/1NcHgQiyTsybZMLVs_ystzkOWtplcYdL8Svwc7DkZhvc/edit?usp=sharing) prior to engaging in futures trading.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.


Robinhood Learn

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Robinhood explains the role of futures in financial markets, who might use futures and how futures can help investors.

Introduction to futures | Robinhood

Frederic Ruffy

Starting from scratch? Here's your quick guide to all things futures.

Introduction to futures

__The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.__

## 🤔 Understanding futures contracts

A futures contract (usually just called “futures”) is an agreement between two parties to buy or sell an asset at a specific price on a future date. Futures exist for a variety of products ranging from stock indices to commodities to currencies. All futures contracts are marked to market and have an expiration date. These characteristics, among others, differentiate futures from stocks and options and play key roles in their performance over the life of the contract.

Generally, futures are not used to facilitate the purchase or sale of the underlying asset. Rather, futures traders typically close their contracts ahead of the expiration date. In many ways, futures trading is similar to stock trading - traders attempt to buy low and sell high (or sell high and buy low later). Buyers and sellers of futures trade contracts on regulated exchanges through a futures broker.

Like options, futures contracts are standardised, making them easier to trade. The terms of the contract are called contract specs and specify critical information that every trader should become familiar with before trading a futures contract. Some examples of futures contract specs include:
1. __Underlying asset__: The product being traded, which can be commodities like oil, gold, silver, and cryptocurrencies, or financial instruments such as stock indices and currencies.
2. __Contract size__: A standardised quantity of the underlying asset specified in the contract. For example, one crude oil futures contract represents 1,000 barrels of oil, one gold futures contract represents 100 troy ounces, and one bitcoin futures contract represents five bitcoin.
3. __Tick size__: A tick is a future contract’s minimum price fluctuation. It’s set by the exchange and will vary from one futures contract to the next. For example, the tick size for E-mini S&P 500 futures is 0.25. Meanwhile, the tick size for gold futures is 0.10.
4. __Tick value__: The amount of money that’s represented by each tick of the contract’s price. It’s calculated by multiplying the contract size by the tick size. For example, because gold futures (/GC) have a contact size of 100 troy ounces and tick size is 0.10, the minimum tick value is $10 per contract (100 x 0.10). For every tick up or down in the price of a gold contract, a trader will make or lose $10 per contract.
5. __Trading hours__: The times a futures contract is open and available to trade. While many futures trade nearly 24 hours a day, Sunday to Friday, the hours vary from one contract to another and aren’t tied to normal stock market hours.
6. __Expiration dates and procedures__: All futures have an expiration date. This is the date when the contract no longer trades and must be settled, either through physical delivery of the asset or cash settlement. At Robinhood Derivatives, cash-settled contracts can be traded up to expiration. Meanwhile, physically settled contracts can’t and must be closed by the last day to trade. Nobody wants to wake up one morning with 1,000 barrels of crude oil in their garden.
7. __Others__: Other contract specs include the futures contract code, or symbol, the grade or quality of the asset, contract listing procedures, position limits, price limits and circuit breaker information, among other details. For a full listing of contract specifications, traders can visit the [exchange website](https://www.cmegroup.com/) where the contract is listed.

### Example

The CME Group West Texas Intermediate (WTI) Light Sweet Crude Oil futures (/CL) is one of the most actively traded energy contracts in the world. The contract represents 1,000 barrels of WTI (a US light sweet crude oil blend) and is widely used by producers, refiners and financial traders to hedge against or speculate on changes in crude oil prices, providing a critical tool for risk management and investment in energy markets. Prices are quoted in US dollars and cents per barrel and the minimum price movement, or "tick," is $0.01 per barrel. Because each contract represents 1,000 barrels, each tick equals $10 per contract (1,000 x .01). The contract is traded nearly 24 hours a day, Sunday to Friday, on the CME Globex electronic trading platform. The contract is physically settled, and traders at Robinhood Derivatives would be required to close or roll their position by the last day to trade, which is displayed in the app.

## How do traders use futures?

Traders generally use futures contracts in anticipation of price movements in the underlying asset, a.k.a. __speculation__. If their forecasts are correct, they can potentially make profits but, when they're wrong, they can suffer losses.

There is a wide variety of market participants who use futures to speculate, including individual traders, hedge funds and proprietary trading firms. It’s important to note, these traders don’t necessarily intend to hold the contract until expiration and take delivery of the underlying asset but instead aim to buy low and sell high (or sell high and buy low) to make a profit.

For example, a speculator might buy a crude oil futures contract if they believe oil prices will rise, planning to sell the contract at a higher price before it expires. Because futures trading involves leverage, speculators can control large positions with a relatively small amount of capital, amplifying potential gains as well as potential losses. This ability to speculate on price movements and control relatively large positions with small amounts of capital makes futures an attractive instrument for traders seeking to capitalise on market volatility. Of course, with that comes the need for knowledge, understanding and proper risk management on the trader’s part.

On the other hand, futures are also used as a tool to manage risk, a.k.a. __hedging__. For example, farmers, oil producers or manufacturers sometimes use futures contracts to lock in prices for their products or raw materials; a farmer might sell a futures contract for corn to secure a guaranteed price at harvest time, protecting against the risk of falling prices. Similarly, an airline company might buy energy futures contracts to stabilise fuel costs and protect against price spikes. By locking in prices through futures contracts, these businesses can manage their risk and ensure more predictable financial outcomes.

You don’t have to be a commercial business to use futures as a hedging tool. A retail trader, for example, can potentially use futures to hedge risk in a stock portfolio. This is sometimes done by selling stock index futures which can help hedge against the risk of falling stock prices, and protect a stock portfolio during market selloffs, corrections and bear markets. However, selling stock index futures also carries unique risks to be aware of and hedging with stock index futures usually requires proper trading mechanics, including position sizing and market timing. The main point is, while some traders use futures to speculate, others use them in an attempt to hedge risk.

## What types of futures contracts exist?

The futures market offers a wide range of contracts across multiple asset classes, catering to various market participants. These include commodities like agricultural products (corn, wheat, soybeans), energy (crude oil, natural gas, gasoline), and metals (gold, silver, copper). Financial futures are also available, covering stock indices (S&P 500, NASDAQ 100, Dow Jones Industrial Average, Russell 2000), interest rates (US Treasury bonds, Eurodollars), and foreign exchange (currencies pairs like EUR/USD, AUD/USD). Additionally, the CME has expanded into newer markets, including cryptocurrency futures (Bitcoin, Ether).

## Who determines the contract specs?

Regulated exchanges like CME Group create futures and standardise their specifications, providing a centralised marketplace where contracts can be bought and sold. Exchanges act as a designated counterparty between a buyer and seller. The exchanges validate and finalise the transaction, ensuring that both the buyer and the seller honour their contractual obligations. This process also makes it easier for traders to enter and exit the market while maintaining anonymity between buyers and sellers.

## What’s the difference between futures and stocks?

If you’ve traded stocks before, many of the concepts of futures trading will already be familiar to you. Like stocks, futures trade on exchanges and are bought and sold through a broker (note that futures trading requires an approved futures account). Each futures contract will have a last price, a bid price and an ask price. If you think the price of a futures contract is going to rise, you might buy it and, if you think it’s going to fall, you might sell it.
While there are similarities, futures and stocks are different in several key ways (note: this isn’t an exhaustive list):

- Futures contracts are __derivatives__, meaning their value is derived from an underlying asset. Stocks, however, represent ownership in a company.
- When you buy a stock, you purchase a share of the company's equity and may receive dividends and voting rights, which isn’t the case with futures.
- Selling stock short involves borrowing shares from a broker and paying interest based on the borrowing rate. Shorting futures doesn’t; it’s simply the opposite of buying a futures contract (a.k.a. “going long”).
- Unlike stocks, futures contracts have expiration dates. Stocks don’t - you can hold shares indefinitely as long as the company remains publicly traded.
- Stocks are subject to pattern-day trading (PDT) rules, which may limit the number of day trades an individual can place over a period of time. Futures aren’t subject to PDT rules.
- The risks of owning stocks and trading futures are different as well. For example, if a person owns shares, their losses are limited to the amount invested. With futures, an investor deposits money and meets margin requirements, and the potential losses can be greater than the amount invested, including the potential for negative prices.

## Are futures the same as options?

While there are some similarities, __futures aren’t options and options aren’t futures__. In fact, some futures have their own options, called “options on futures” or “futures options”. Although not exhaustive, here’s a list of some of the main differences:

- Futures contracts obligate the buyer to purchase, and the seller to sell, a specific asset, at a predetermined price on a future date. Meanwhile, option contracts give the buyer the right, but not the obligation, to buy (call option) or sell (put option) an asset at a predetermined price (the strike price) on or before a specified expiration date. The seller of the option has the obligation to fulfil the contract if the buyer exercises the option.
- At expiration, futures contracts must be settled either by physical delivery of the underlying asset or cash settlement, depending on the contract terms. Options also have expiration dates, but whether or not the contract is exercised typically depends on whether it is in the money or out of the money. The concept of moneyness doesn’t apply to futures as there are no strike prices for futures contracts.
- While the supply and demand of the underlying asset and expectations of its future price are the main determinants of a future’s price, many factors influence the value of an option: the current price of the underlying asset, the strike price, time to expiration, implied volatility and any potential dividends paid prior to the expiration.
- Most futures traders are looking to profit from moves up (bullish) or down (bearish) in the value of the contract. Options traders can express opinions through a variety of strategies that are bullish, bearish, neutral, long volatility, short volatility and others.

## Takeaway

Futures are unique financial instruments that differ from stocks and from options in a number of ways and have their own pros, cons, regulations and risks. Often used to hedge or for speculation, a futures contract is a legally binding agreement to buy or sell an asset at a predetermined price on a specific future date. They’re standardised in terms of quality, quantity and delivery specifics, making them easily tradable on the futures exchanges and through a futures broker. Today, futures contracts are available across a wide range of commodities, financial instruments and newer markets like cryptocurrencies.

__Important information__

When investing, your capital is at risk. The value of your investments, and the income you receive from them, can go down as well as up and you may get back less than you invest. Forecasts aren’t a reliable guide to future results or returns.

Futures are complex products with a high risk of losing money rapidly due to leverage. They’re not suitable for all investors. Before you invest, you should make sure you understand how futures work, what the risks are of trading futures and whether you can afford to lose more than your original investment.  Please review the [Futures Risk Disclosure Statement](https://docs.google.com/document/d/1NcHgQiyTsybZMLVs_ystzkOWtplcYdL8Svwc7DkZhvc/edit?usp=sharing) prior to engaging in futures trading.

Make sure to do your own research on what investments are right for you before investing or consider seeking expert financial advice. Please note that this article is meant for information and does not constitute any financial advice. This is not an offer, recommendation, inducement or invitation to buy, sell, or hold any securities, or to engage in any investment activity or strategy.

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A futures contract is an agreement to buy or sell an asset at a certain time in the future for a certain price.

What’s a futures contract? | Robinhood

Learn the basics of futures contracts before you start trading.

What's a futures contract?

What’s a futures contract?

__The value of your investments and the income you receive from them can go up and down, and you may get back less than you invest. Any examples are for illustration purposes only.__

## 🤔 Understanding the futures market

The futures market is a financial marketplace where participants buy and sell standardised futures contracts on regulated futures exchanges. It’s a global marketplace, trading nearly 24 hours a day, Sunday to Friday, and provides access to an array of markets and trading opportunities outside of the traditional stock market. Additionally, futures help provide economic stability by allowing businesses and individuals to hedge against the risk of changing prices, enabling them to operate with greater certainty.

Generally, futures traders fall into two buckets: __speculators__ and __hedgers__. Speculators tend to take risk while hedgers look to manage it. Each group may consist of individual traders, proprietary trading firms, portfolio managers, hedge funds, market makers and others. Futures brokers, like Robinhood Derivatives, act as intermediaries between traders and futures exchanges, providing access, executing orders and offering essential services while ensuring compliance with regulatory standards.

The futures market is regulated by the Commodity Futures Trading Commission (CFTC). The CFTC oversees futures markets in the US by encouraging their competitiveness and efficiency while protecting market participants against manipulation, abusive trading practices and fraud.

## What’s a futures contract?

Also known simply as “futures”, a futures contract is an agreement between two parties to buy or sell a particular commodity or asset at a set price on a specific date in the future.

- __Futures buyers__ take on the obligation to buy the asset and typically expect the price to move up.
- __Futures sellers__ have the obligation to sell or deliver the underlying asset and generally expect the price to fall.

Although futures contracts create obligations for both the buyer and seller, most futures traders never intend to make or take delivery of the underlying asset. Instead, they almost always close their contract before it expires.

## What’s a futures exchange?

A futures exchange is a centralised marketplace where futures are bought and sold. Exchanges, like the __Chicago Mercantile Exchange (CME)__, provide the infrastructure and regulatory framework necessary for efficient and transparent trading. Futures brokers, like Robinhood, act as intermediaries between traders and futures exchanges. By facilitating futures trading, futures exchanges play a vital role in global financial markets.

### Example

Through its futures exchanges, the CME Group offers a vast array of futures and options contracts across multiple asset classes. As one of the largest and most diversified financial exchanges in the world, the CME Group provides platforms for market participants to hedge risk and speculate on price movements through futures contracts. While the exchange once had a vibrant trading floor, almost all are now closed and the days of traders gathering in trading pits are largely a thing of the past. The bulk of futures trading takes place on CME Group’s Globex electronic trading platform.

## What’s a speculator?

A speculator attempts to profit by predicting the change in price of a futures contract. There are two ways a speculator can make profits: buying low and selling high or selling first and then later buying at a lower price to close their position. When a speculator buys or sells a futures contract they’re taking on risk of loss in exchange for the potential of making a profit.

## What’s a hedger?

A hedger uses futures to manage their risk and is typically an individual or firm that has a commercial business or financial interests related to the underlying asset. Many hedgers are producers, wholesalers, retailers or manufacturers and their businesses can be affected by changes in commodity prices, exchange rates, interest rates, etc. Meanwhile, investors and portfolio managers can use futures to hedge the risk of changing asset prices in their financial portfolios.

Generally:
- __Buy-side hedgers__ are concerned about rising prices. For example, airline companies sometimes hedge their future fuel costs by buying energy futures.
- __Sell-side hedgers__ are concerned about falling prices. For example, a farmer might sell wheat futures to lock in current prices if they fear crop prices will fall in the future.

Unlike speculators who assume market risk for profit, hedgers use the futures markets to manage and offset risk. Similarly, individual investors and traders can attempt to hedge risk in their accounts. For example, if they own stocks and are worried that prices will fall, they may sell stock index futures to hedge the risk of a market selloff. Of course, market timing, position sizing and costs are just some of the considerations for anyone using futures to hedge risk.

## What’s a futures broker?

A futures broker facilitates the buying and selling of futures contracts, executes orders and offers services such as holding funds and providing market data for their customers. Futures brokers must be registered with regulatory bodies like the CFTC in the US, ensuring compliance with industry standards and protection for traders. They often charge commissions or fees for their services, which can vary based on different factors.

## What’s the CFTC?

Established in 1974, the Commodity Futures Trading Commission (CFTC) is an independent US federal agency responsible for regulating the futures and options markets, ensuring their integrity and protecting market participants from fraud, manipulation and abusive practices. The CFTC's primary responsibilities include overseeing trading practices, enforcing compliance with regulatory standards and promoting transparency and financial stability within these markets. By monitoring and regulating the activities of exchanges, clearing houses and market participants, the CFTC aims to foster open, competitive and financially sound futures and options markets, thereby safeguarding the interests of both investors and the broader economy.

## Takeaway

Futures markets are global marketplaces trading at high speeds nearly 24 hours a day, Sunday to Friday. They can provide access to a wide array of investment and trading opportunities, like commodities, currencies and metals, that aren’t available in a traditional stock brokerage account.

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What’s the futures market?

Futures markets provide access to a wide array of investment opportunities not available on the traditional stock market.