A futures contract is a standardized agreement between a buyer and a seller to exchange an underlying asset (or its cash equivalent) at a predetermined price on a specific future date, letting both parties express a view on — or hedge against — where that asset’s price is headed.
Key Takeaways
- Every futures contract has a predetermined price and an expiration date, except for perpetual futures, which have no expiration.
- Going ‘long’ means betting the price will rise; going ‘short’ means betting it will fall — both are equally accessible, unlike simple spot buying.
- Futures typically involve leverage, meaning a relatively small amount of capital (margin) controls a much larger contract value.
- Contract specifications vary by exchange and asset, and understanding a specific contract’s terms before trading is essential.
- Because of leverage, futures trading carries meaningfully higher risk than simple spot trading.
Our Take
The ability to easily go short — profiting from a price decline — is one of the most significant practical differences futures offer compared to spot trading, where profiting from a decline typically requires more complex mechanisms.
The leverage embedded in most futures contracts is the factor that most changes the risk calculus compared to spot trading. Understanding your specific contract’s leverage, margin requirements, and liquidation mechanics before opening any position is a foundational step.
FAQs
What’s the difference between going long and going short on a futures contract?
Going long means you profit if the price rises; going short means you profit if the price falls — futures make both directions equally accessible, unlike simple spot trading.
Do all futures contracts have an expiration date?
No — traditional futures contracts have a set expiration date, but perpetual futures (common in crypto) have no expiration and can be held indefinitely.
📎 Source: Coinbase Learn — Futures fundamentals: Understanding the basics
