Futures trading has its own vocabulary, and if you've ever glanced at a futures chart or read about commodity markets, you've probably encountered terms that seem designed to confuse. Margin means something different here than it does in stock trading. So does settlement. Even "going long" comes with an expiration date attached.
This glossary breaks down the key terms so you can read futures content without feeling like you need a translator.
What is a futures contract
A futures contract is a standardized agreement to buy or sell an underlying asset — like crude oil, gold, or a stock index — at a predetermined price on a specific future date. Both parties are legally obligated to complete the transaction when the contract expires. This is different from options, where the buyer has a right but not an obligation.
Futures trade on regulated exchanges, which means every contract has standardized terms. The exchange sets the quantity, expiration month, and settlement method — none of this is negotiated between buyer and seller.
You'll find futures contracts on a wide range of assets:
Commodities: crude oil, natural gas, gold, wheat, corn
Stock indices: S&P 500, TSX 60
Currencies: Canadian dollar, euro, Japanese yen
Interest rates: Government of Canada bonds, U.S. Treasury bonds
The key concepts to understand when starting out include long and short positions (buying versus selling), margin (the collateral required to open a trade), tick size (the smallest price movement), and expiration date (when the contract settles). We'll cover each of these below.
Margin and leverage terms in futures trading
Futures trading uses margin, which is a deposit you put up to open a position. You don't pay the full value of the contract upfront. Instead, you post a fraction of it as collateral, and this is what creates leverage.
Here's something that trips up a lot of people coming from stock trading: futures margin works differently than equity margin. When you buy stocks "on margin," you're borrowing money from your broker and paying interest on that loan. In futures, margin is a performance bond — a good-faith deposit held by the clearinghouse to ensure you can cover potential losses. No money is borrowed, and no interest is charged on the margin deposit itself.
Initial margin
Initial margin is the upfront deposit required to open a futures position. The exchange sets this amount, though brokers sometimes require more. Think of it as a performance bond rather than a down payment.
Here's how the leverage works in practice: if a crude oil futures contract is worth $80,000 and the initial margin is $6,000, you're controlling $80,000 worth of exposure with $6,000.
Maintenance margin
Maintenance margin is the minimum account balance you need to keep a position open. It's always lower than the initial margin to provide a little extra room to account for market volatility. If your account equity drops below this level because the market moved against you, you'll receive a margin call.
Margin call
A margin call is a demand from your broker to deposit additional funds when your account equity falls below the maintenance margin level. If you don't meet the margin call, the broker can liquidate your position without your consent — sometimes at a significant loss. It’s important to note if you receive a margin call, you’ll need to bring your account back to the initial margin requirement amount, not just the margin maintenance.
Leverage
Leverage is the ability to control a large contract value with a small margin deposit. It amplifies both gains and losses proportionally.
For example, with 10:1 leverage, a 1% move in the underlying asset results in a 10% gain or loss on your margin. This is one of the primary reasons futures carry higher risk than traditional stock or Exchange-Traded Fund (ETF) investing.
Futures price and movement terminology
Understanding how futures prices are quoted and how they move is essential for reading charts and calculating profit and loss.
Tick and tick value
A tick is the minimum price increment a futures contract can move — the smallest possible price change. Tick value is the dollar amount you gain or lose for each tick of movement.
Tick size and tick value vary by contract. For E-mini S&P 500 futures, the tick size is 0.25 index points with a tick value of US$12.50. For crude oil futures, the tick size is US$0.01 per barrel, which translates to US$10 per tick (since each contract covers 1,000 barrels). Knowing tick value lets you calculate position size and potential loss before entering a trade.
Settlement price
The settlement price is the official closing price set by the exchange at the end of each trading session. It's used to calculate daily profit and loss (called mark-to-market) and to determine whether a margin call is required.
One thing to note: the settlement price isn't always the last traded price. Exchanges typically use a volume-weighted average of trades near the close.
Spot price
The spot price is the current market price for immediate delivery of the underlying asset. It differs from the futures price, which reflects delivery at a future date.
The difference between spot and futures prices is called the basis. Factors like storage costs, interest rates, and supply expectations all influence this gap.
Bid and ask prices
The bid is the highest price a buyer is willing to pay for a futures contract at a given moment. The ask (or offer) is the lowest price a seller will accept. The bid-ask spread — the difference between the two — measures market liquidity. Tighter spreads indicate more liquid markets with lower transaction costs.
Futures market analysis terms
These terms help traders interpret market activity and assess the strength of price moves.
Trading volume
Volume is the total number of futures contracts traded during a specific period. High volume suggests strong market participation and adds credibility to a price move. Low volume may indicate weak conviction or a less liquid market. Volume resets each session — it's not cumulative.
Open interest
Open interest is the total number of outstanding futures contracts that haven't been settled, closed, or delivered. It's different from volume: volume counts every trade executed, while open interest counts only contracts that remain open.
Changes in open interest can signal market sentiment:
Rising open interest + rising price: often suggests new money entering the market, a bullish signal
Falling open interest + falling price: may indicate positions being closed and a weakening trend
Support and resistance
Support is a price level where buying interest tends to emerge, preventing further declines — it acts as a floor. Resistance is a price level where selling pressure appears, preventing further increases — it acts as a ceiling. Traders identify support and resistance levels through historical price data and use them to plan entries, exits, and stop placements.
Liquidity
Liquidity refers to how easily a futures contract can be bought or sold without significantly affecting its price. Higher liquidity means tighter bid-ask spreads and lower transaction costs. Liquidity varies significantly across futures markets — major contracts like E-mini S&P 500 are highly liquid, while niche commodity contracts may not be.
Position and strategy terms in futures
These terms describe the fundamental positions traders take and the purposes behind them.
Long position
A long position means buying a futures contract with the expectation that the price will rise. You profit when the underlying asset's price increases above your entry price and lose when it falls below. Going long in futures is conceptually similar to buying a stock — but with leverage and an expiration date attached.
Short position
A short position means selling a futures contract with the expectation that the price will fall. You profit when the price decreases below your entry price and lose when it rises above. Unlike short selling stocks, there's no need to borrow shares — short selling in futures is structurally straightforward.
Hedging
Hedging uses futures contracts to offset potential losses in an existing position or business operation. For example, a Canadian wheat farmer expecting to harvest in 3 months might sell wheat futures today to lock in a price, protecting against a decline before harvest. Hedging is the original purpose of futures markets — it transfers price risk from producers and consumers to speculators.
Speculation
Speculation means taking futures positions to profit from anticipated price movements, without an underlying physical exposure to hedge. Speculators provide liquidity to the market, making it easier for hedgers to find counterparties. The risk: speculators bear the full price risk they take on, amplified by leverage.
Contract lifecycle terms
Every futures contract follows a defined lifecycle from listing to settlement.
Expiration date
The expiration date is when a futures contract ceases trading and settlement occurs. Each contract has a specific expiration month — many major contracts expire in March, June, September, and December. Traders who don't want to take or make delivery close or roll their position before expiration.
Rollover
Rollover is the process of closing a position in a near-expiring contract and simultaneously opening a new position in a later-dated contract. Traders roll to maintain continuous market exposure without taking physical delivery. Rollover typically occurs in the weeks before expiration, when the front-month contract's liquidity begins declining.
Settlement
Settlement is the process of fulfilling the contract's obligations at expiration. There are two types:
Physical settlement: the actual underlying commodity is delivered from seller to buyer (common in agricultural and energy futures)
Cash settlement: the difference between the contract price and final settlement price is paid in cash (common in index futures)
Most retail futures traders never reach settlement — they close or roll positions beforehand.
Futures market structure terms
Futures markets function through a network of regulated institutions that ensure trades are executed, cleared, and settled reliably.
Exchange
An exchange is the regulated marketplace where futures contracts are listed and traded. In Canada, the Montréal Exchange (MX) lists Canadian interest rate and equity index futures. In the U.S., the Chicago Mercantile Exchange (CME) is a major futures exchange. The exchange standardises contract specifications, sets margin requirements, and oversees trading rules.
Clearinghouse
A clearinghouse is the intermediary that guarantees contract performance and manages counterparty risk. It acts as the buyer to every seller and the seller to every buyer, so neither party faces direct credit risk from the other. This structure is one of the key advantages of exchange-traded futures over private, over-the-counter derivatives.
Underlying asset
The underlying asset is the financial instrument or commodity on which a futures contract is based. It determines the contract's behaviour, tick value, and settlement method. Examples span asset classes: crude oil and gold (commodities), S&P 500 and TSX 60 (stock indices), Canadian dollar and euro (currencies), and Government of Canada bonds (interest rates).
