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What Is a Futures Contract

A futures contract is a standard promise, traded on an exchange, to buy or sell a set amount at a set price on a set date, settled every day by the change in its price and held on a margin deposit rather than the whole sum. This paper shows what the promise is, how the daily settlement moves money on one gold contract across three real days, why a futures market is a row of months, and how a futures-based CFD differs from a spot row on a platform. After reading it you can read a future's size and date, work out what a day's close-to-close change is worth on one contract, and tell a futures row from a spot row by its Expiration date line.

Difficulty
Intermediate
Reading time
5 min
Pages
8
Reviewed by
Saman Rahbar

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A futures contract, in five lines

A futures contract is a promise to buy or sell a set amount of something at a set price on a set date, traded on an exchange where the size, the date and the rules are the same for everyone. One gold contract is 100 troy ounces, which at the real 25 August 2026 gold price of 4,653.58 is 465,358 dollars of gold. Nobody pays that sum. A margin deposit, meaning money set aside while the contract is held, is taken instead, and the contract is settled every day by the change in its price. The date is in its name, December 2026 here as an example, and most contracts are closed before it arrives. The CFDs on indices, oil and gold that a platform lists follow a futures price, so the future is the thing underneath.

A promise with a date

Picture a calendar with the delivery day marked, and beside it the promise itself: 100 ounces of gold at 4,653.58 an ounce, to be traded on that day. The buyer of the promise gains if gold is higher when the day comes; the seller gains if it is lower. The exchange stands between the two, so that neither has to trust the other, and that is why the size and the date are standard: a promise everyone can trade has to be the same promise. Everything else about a future follows from the price being fixed now for a trade later.

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