# Futures: Standardized Contracts Used for Index Exposure and Hedging

Understand futures contracts in a US equity-market context, including margin, daily settlement, leverage, expiration, and how futures differ from stocks and options.

Canonical: https://wiki.fcontext.com/stocks/futures/
Fact checked: 2026-07-20

> For educational purposes only; not investment advice.

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## Direct answer

**Futures** are standardized contracts traded on an exchange. In a US equity-market context, investors often encounter stock-index futures, which provide exposure to an index level rather than ownership of the underlying companies.

Futures are not stocks. They have expiration dates, margin requirements, daily mark-to-market settlement, and leverage. Gains and losses can arrive quickly relative to the cash posted as margin.

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## How it works

A futures contract specifies the underlying reference, contract size, expiration, price quotation, settlement method, and exchange rules. Many index futures settle in cash rather than by delivering all index constituents.

Futures use margin differently from buying stock on margin. Initial margin is performance bond collateral, not a partial payment for owning the asset. Each trading day, the position is marked to market. Gains are credited and losses are debited, and additional funds may be required if the account falls below maintenance levels.

Because the contract value can be much larger than the margin posted, small index moves can create large percentage changes in account equity.

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## Example

Suppose an index futures contract has a multiplier of `$50` and trades at `5,000`. The notional value is:

`5,000 × $50 = $250,000`

If the index futures price falls by `1%` to `4,950`, the contract change is:

`50 points × $50 = $2,500`

If the trader posted `$15,000` of margin, that `1%` futures move equals about `16.7%` of the posted margin. This illustrates leverage; it does not include commissions, fees, liquidity, or margin changes.

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## Risks

- **Leverage risk:** Losses can be large relative to margin.
- **Margin-call risk:** Adverse moves can require additional funds quickly.
- **Expiration risk:** Contracts expire and must be closed, settled, or rolled.
- **Basis risk:** Futures prices can differ from the spot index, ETF proxy, or settlement value.
- **Liquidity risk:** Overnight and stressed-market liquidity can differ from normal hours.

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## Common misconceptions

Futures are not the same as ETFs. An ETF share is a fund interest; a futures contract is a derivative obligation.

Futures are not the same as long call options. A futures position has symmetric gains and losses, while an option buyer pays a premium for a contractual right.

Low margin does not mean low risk. It means the position is leveraged.

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## Related topics

- [Exchange-Traded Funds](/stocks/etf/)
- [Cash Settlement](/options/cash-settlement/)
- [Call and Put Options](/options/call-put/)

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## Sources

- CFTC and NFA: futures basics, margin, and investor-risk education.
- Cboe: futures exchange rulebook context.
- OCC: options risk disclosure used to compare futures and options structures.