ADVFN Logo ADVFN

We could not find any results for:
Make sure your spelling is correct or try broadening your search.

Trending Now

Toplists

It looks like you aren't logged in.
Click the button below to log in and view your recent history.

Hot Features

Registration Strip Icon for tools Level up your trading with our powerful tools and real-time insights all in one place.

What are the Mechanics of a Futures Contract?

The mechanics of a futures contract involve an agreement for the purchase or sale of an asset at a future date.

For example, an oil producer has plans to produce a million barrels of oil over the coming year, which will be ready for delivery in 12 months. The producer could enter into a contract now, to sell the oil at the current market price in a year’s time, after the oil has all been produced.

Oil prices are extremely volatile so the current price – say, $75 per barrel – could have changed over the next year. So if the producer thinks that prices are unlikely to go up, the contract will lock in that as a guaranteed sales price. On the other hand, if they think the oil price will rise, the contract may not lock in a price now.

Predicting where the price will be in a year’s time uses a mathematical model. This takes into account factors such as the current price, the risk-free rate of return, time to maturity, storage costs, dividends, dividend yields, and convenience yields.

Futures use standardized contracts; for example the oil contract used on the Chicago Mercantile Exchange (CME) is for 1,000 barrels of oil. So to lock in the price for 100,000 barrels would take 100 contracts, and for a million barrels it would be 1,000 contracts – either buying or selling.

Disclosure: Your capital is at risk. Other fees apply. For more information, visit etoro.com/trading/fees

Advertisement

Futures markets are regulated by the Commodity Futures Trading Commission (CFTC), a federal agency created by Congress in 1974 to ensure the integrity of futures market pricing. This includes preventing fraud, stopping abusive trading practices, and regulating brokerage firms engaged in futures trading.

Find a Spread Betting Broker

  • We're regulated in 7 jurisdictions including with the FCA in the UK
  • Access razor sharp spreads from 0.0 pips* and top tier liquidity
  • 99.99% fill rate*, fast execution and no dealing desk intervention
  • Choose from 4 world-leading platforms, including MT4/5 & TradingView

75.3% of retail investor accounts lose money when trading spread bets and CFDs with this provider.

Min Deposit:No Minimum Deposit
Mobile App: Yes
  • Over 4,700 instruments to trade
  • Social features, including copy trading
  • Smart Portfolios (ready-made thematic portfolios)
  • Free $100,000 demo account

76% of retail investor accounts lose money when trading CFDs with this provider.

Min Deposit:$100
Mobile App: Yes
  • Access over 17,000 markets to trade
  • Trade quickly and smoothly, with technology designed to ensure that your deal goes through
  • Free trading courses and webinars
  • Round-the-clock support 24 hours a day, from 8am Saturday to 10pm Friday

68% of retail investor accounts lose money when trading CFDs with this provider.

Min Deposit:£250 by credit/debit card and PayPal
Mobile App: Yes
Futures
What are the Mechanics of a Futures Contract?
Categories: