Futures Trading Explained: Key Concepts to Know
Futures trading is more than predicting whether prices will rise or fall. Understanding margin and risk management is essential.
Here are the key concepts:
Long vs Short: A long position benefits from rising prices; a short position benefits from falling prices.
Contract Specifications: Lot size, contract size, expiry date and price tick define the contract.
Initial Margin: Funds required to open a futures position.
Mark-to-Market (MTM): Daily settlement of gains and losses.
Maintenance Margin: Minimum balance required to keep a position open.
Margin Call: A demand to add funds when your margin falls below the required level.
Variation Margin: Funds paid or received to cover changes in a futures position’s value.
Rollover: Closing an expiring contract and opening a later-dated one.
Open Interest: Number of outstanding contracts that have not been closed or settled.
Key takeaway: Leverage can amplify both profits and losses. Always understand margin requirements, contract expiry and your downside risk before trading.
📊 Futures Trading Explained: Key Concepts to Know
Futures trading is more than predicting whether prices will rise or fall. Understanding margin and risk management is essential.
Here are the key concepts:
📈 Long vs Short: A long position benefits from rising prices; a short position benefits from falling prices.
📦 Contract Specifications: Lot size, contract size, expiry date and price tick define the contract.
💰 Initial Margin: Funds required to open a futures position.
🔄 Mark-to-Market (MTM): Daily settlement of gains and losses.
⚠️ Maintenance Margin: Minimum balance required to keep a position open.
📞 Margin Call: A demand to add funds when your margin falls below the required level.
💵 Variation Margin: Funds paid or received to cover changes in a futures position’s value.
📅 Rollover: Closing an expiring contract and opening a later-dated one.
📊 Open Interest: Number of outstanding contracts that have not been closed or settled.
Key takeaway: Leverage can amplify both profits and losses. Always understand margin requirements, contract expiry and your downside risk before trading.
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