Futures Market Basics
This guide introduces the core concepts behind futures markets – contracts, margin, leverage, tick value, rollover and basic risk structure. It is designed for traders who use futures in personal accounts or funded prop accounts and want a clean foundation.
Everything here is educational. It explains how common futures products are structured so you can read specifications, risk disclosures and broker documents with more clarity.
Who This Guide Is For
- Traders coming from spot FX, CFDs or equities into exchange-traded futures.
- Prop-firm traders who see symbols like ES, NQ, YM, CL and want clearer structure.
- Traders who already place futures trades but are not fully sure how margin, tick size or expiration work.
- Anyone treating futures trading as a business and wanting a solid base.
What You Will Be Able To Do After Reading
- Explain in simple words what a futures contract is and what it represents.
- Read basic contract specifications: tick size, tick value, contract size.
- Understand the difference between initial margin and maintenance margin.
- Plan around sessions, volatility, news releases and contract rollover dates.
Contract specs, margins and trading hours are always taken from the official exchange and your broker or prop firm. This guide gives you the framework for reading them.
1. What Is a Futures Contract?
A futures contract is a standardized agreement traded on an exchange to buy or sell an underlying asset at a specified price at a specified time in the future. In practice, most active traders close or roll their positions before any physical delivery. The contract is still built around that delivery concept, which is why specifications matter.
Key Features
- Standardized: each contract has fixed rules: contract size, tick size, tick value, trading hours, expiration month and settlement method.
- Exchange-traded: trades are cleared through a regulated exchange and clearing house rather than directly between two parties.
- Margin-based: you post a fraction of the contract value as margin, which creates leverage.
- Marked-to-market: profit and loss are settled daily in your account, not only when you close the position.
Common Futures Categories
- Equity index futures (for example contracts based on major stock indices).
- Interest rate futures (short-term rates and government bonds).
- Commodity futures (energy, metals, agriculture, soft commodities).
- Currency futures (major FX pairs quoted on futures exchanges).
2. Tick Size, Tick Value & Contract Size
Every futures market defines its own minimum price movement (tick size) and how much each tick is worth in currency (tick value). Together with contract size, this tells you exactly how much money you gain or lose for a price move.
Core Definitions
- Tick Size: the minimum price increment the contract can move (for example 0.25 index points).
- Tick Value: the monetary value of one tick for one contract (for example $12.50 per tick).
- Contract Size: how much of the underlying asset the contract controls (for example 50 times the index level, or 1,000 barrels of crude oil).
- Point Value: sometimes it is useful to know value per full index point (ticks per point × tick value).
Why This Matters for Risk
- Determines how much you risk per trade once you set your stop in ticks or points.
- Helps you compare contracts – some products move fast and have high tick value, others are slower and cheaper to trade.
- Lets you check if a product fits your account size and prop firm rules.
- Prevents surprises: a ten-tick move is very different in different markets.
Before trading any futures product, always read the official contract specs from the exchange or your broker and plug the tick value into your risk plan.
| Example Concept | Assumed Tick Size | Assumed Tick Value | Move of 10 Ticks |
|---|---|---|---|
| Equity index futures | 0.25 index points | $12.50 per tick | 10 × $12.50 = $125 per contract |
| Micro equity index futures | 0.25 index points | $1.25 per tick | 10 × $1.25 = $12.50 per contract |
| Crude oil futures | 0.01 price units | $10.00 per tick | 10 × $10.00 = $100 per contract |
These numbers are illustrative only to show how tick value works. Actual specifications are always taken from the real exchange.
3. Margin, Leverage & Daily Settlement
Futures contracts are highly leveraged instruments. You control a contract with a margin deposit instead of paying the full notional value. This leverage cuts both ways – it allows efficient capital use, but also amplifies losses.
Basic Margin Concepts
- Initial Margin: the minimum amount required to open a position.
- Maintenance Margin: the minimum amount required to keep the position open; your broker may liquidate or request funds if equity drops below this level.
- Day-Trade / Intraday Margin: some brokers and prop firms offer lower margin requirements during regular trading hours, with higher overnight margin.
- Notional Value: contract size × price; useful for understanding the true exposure behind the margin deposit.
Daily Mark-to-Market
- Futures positions are settled daily – profit and loss is credited or debited in cash.
- Large swings can generate margin calls or forced liquidation if equity is not sufficient.
- In prop accounts, hitting daily or trailing drawdown limits can close the account even if exchange margin is still sufficient.
- Your risk plan should assume that intraday swings and slippage will occur, especially around news or low-liquidity times.
Margin is set by the exchange and by your broker or prop firm. It can change with volatility and risk conditions.
4. Trading Sessions, News & Contract Rollover
Futures markets often trade nearly 24 hours a day during the week, but activity is not equal across the entire session. Volume, volatility and spreads change with region and news. Contracts also have expiration months, which means you need a plan for rollover.
Sessions & Volatility
- Electronic trading typically has a main “regular trading hours” session and a thinner overnight session.
- Liquidity tends to be highest when major equity markets are open for the underlying index or when key economic regions overlap.
- Spreads often widen and moves can be sharp at the open, around major news and near the close.
- A written session plan can specify which hours you trade and which hours you avoid.
News & Rollover
- Important scheduled releases (employment, CPI, central bank decisions, inventory reports for commodities) can create large spikes and gaps.
- Some brokers and prop firms apply special rules or margin around specific events.
- Futures contracts have expiration months; traders usually “roll” to a later month before volume shifts away from the front month.
- Rollover can cause small gaps in price between contracts – risk plans should account for this.
5. Structuring Risk in Futures Trading
Because futures are leveraged, risk control is the central skill. Contract specs, margin and sessions only matter if they flow into a clear risk plan that you actually follow.
Key Questions to Answer in Your Plan
- How many contracts can you trade per setup at your chosen risk per trade?
- What is the maximum intraday loss you will allow before stopping?
- How many open positions can you carry across correlated futures at once?
- Will you hold positions through major news, or will you flatten first?
- How will you handle rollover – exact date, process and re-checking tick value?
Connecting to Other MRSLM Material
- Risk + Scaling Guide: shows how to turn contract specs into position size and account drawdown rules.
- Market Guides: futures-specific education for indices, rates, commodities and their drivers.
- AI Tools & Bots: indicators and dashboards can help monitor margin, exposure and volatility in real time.
- Trading Psychology eBooks: address how to stick to these rules under pressure, especially when using leverage.
Futures education, risk planning and psychology all work together. Skipping any one of them usually shows up in the account sooner or later.
Summary: Building a Solid Futures Foundation
Futures markets offer deep liquidity and powerful tools for speculation and hedging, but they are unforgiving when traders ignore contract details or risk. A solid foundation means you:
- Understand what each contract represents and how it is structured.
- Know the tick size, tick value and margin requirements before trading.
- Have a written plan for sessions, news events and rollover.
- Use a risk and scaling framework that keeps leverage aligned with your account size and prop firm rules.
The futures material in MRSLM Group is written to support that foundation so you can build your own methods on top of it.
Risk & Legal Notice
MRSLM Group LLC provides educational information only. The Futures Market Basics material does not provide financial, investment, tax or legal advice and does not recommend any specific futures contract, exchange, broker, prop firm, trading system or level of risk as suitable for you. Examples of contracts, tick values, margins and price movements are illustrative only. Trading futures, options on futures and other leveraged instruments involves a high level of risk and can result in substantial losses. Margin requirements, contract specifications, trading hours and regulations change over time; always consult the official documentation from the relevant exchanges, brokers and prop firms and seek independent professional advice before trading with real capital. Past performance, backtests and case studies do not guarantee future results.