What is a futures contract? How futures work and how they differ from forwards
By SendPay Business · · 2 min read
A futures contract is an agreement to buy or sell something at a set price on a set future date. Futures are traded on exchanges, with standard sizes and dates, so anyone can buy or sell the same contract.
Futures vs forwards
- Futures: standard contracts traded on an exchange, with a clearing house standing between buyer and seller.
- Forwards: private deals agreed directly between two parties, such as a business and its bank, and tailored to their needs.
- Futures are settled against margin every day; forwards usually settle once, at the end.
Who uses them
Producers and buyers use futures to lock in prices for things like wheat, oil or currencies, which is hedging. Traders use them to bet on price moves, often with leverage, since only a margin deposit is needed to open a position. Futures also exist on bitcoin and other crypto.
The risks
Because futures are marked to market daily, a price moving against you can mean margin calls, where you have to add money at short notice or be closed out. Losses can exceed the deposit.
Where SendPay fits
SendPay does not offer futures or other trading products. SendPay platforms offer GBP, EUR and USD accounts, currency exchange at a fee the owner sets, and crypto buy, sell and hold.
Build it
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Build my platform →Questions people ask
What does funding cost on a perpetual future?
Work out funding payments on a long or short over the time you hold it.
Funding rate calculator →How close am I to a margin close-out?
Work out your margin level and how much more loss your account can take.
Margin level calculator →Where would a leveraged trade be liquidated?
Work out a liquidation price from entry and leverage.
Liquidation price calculator →What is a forward contract?
A private deal to exchange later at a set rate.
What is a forward contract? →Read next
This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.