What a futures contract is

A futures contract is a standardised agreement to buy or sell an asset at a set price on a set future date. It trades on a regulated exchange, such as the CME Group in the United States, and every contract of the same type has identical terms.

Most retail traders never take or make delivery of anything. They open and close positions before expiry and settle the difference in cash. What they are trading, in practice, is changes in the contract's price.

The contract specification

Every futures market publishes a specification. The parts a trader needs to know:

• The underlying: what the contract tracks, for example the S&P 500 index for ES or the Nasdaq-100 for NQ.
• The contract size: how much of the underlying one contract represents.
• The tick size: the smallest price movement allowed.
• The tick value: how much money one tick is worth per contract.
• Trading hours and expiry months.

Front month and rolling

Contracts expire. Index futures such as ES and NQ have quarterly expiries in March, June, September and December. Most volume sits in the nearest contract, called the front month. As expiry approaches, traders move to the next contract, which is called rolling.

Rolling matters for anyone studying historical charts: a continuous chart stitches several contracts together, and the method used to join them changes the prices shown.

This course is educational. It explains how futures work and does not recommend trading them. Futures carry a substantial risk of loss and are not suitable for everyone.