Related Investment Calculators
What is a Futures Contract?
A **Futures Contract** is a standardized agreement to buy or sell an underlying asset at a specified price at a future date. These contracts are traded on exchanges and are used by investors to hedge against price changes or to speculate on price movements of commodities, financial instruments, or indices.
Futures contracts are highly leveraged, meaning small price movements can lead to significant gains or losses. They require a margin deposit, and traders must maintain a minimum margin level to avoid margin calls.
Futures vs. Options vs. Stocks
| Feature | Futures Contract | Options Contract | Stocks |
|---|---|---|---|
| Obligation | Binding to buy/sell | Right, not obligation | Ownership of company |
| Leverage | High (Margin-based) | High (Premium-based) | Low (Full payment) |
| Expiration | Fixed expiration date | Fixed expiration date | No expiration |
| Risk | High (Unlimited loss) | Limited to premium | Limited to investment |
How to Use the Futures Contract Calculator
- Contract Size: Enter the size of one futures contract (e.g., number of units like barrels for oil or ounces for gold).
- Initial Price: Input the price per unit at which you enter the futures contract.
- Final Price: Enter the price per unit at the contract’s settlement or exit.
- Number of Contracts: Specify how many contracts you are trading.
- Calculate: See the projected profit or loss from the futures contract trade.
Frequently Asked Questions (FAQ)
Are futures contracts risky?
Yes, futures contracts carry significant risk due to their leveraged nature. Price movements can lead to large gains or losses, and traders may face margin calls if the account balance falls below the required level.
What is a margin call in futures trading?
A margin call occurs when the account balance falls below the maintenance margin level, requiring the trader to deposit additional funds to cover potential losses or risk having the position liquidated.