Futures Trading - Meaning, Futures Markets and Types of Futures

The Basics of Futures Trading

Imagine you are a farmer growing wheat. You are worried that when your wheat is ready in three months, the price might drop, and you will lose money. To feel safe, you find a buyer today who agrees to buy your wheat in three months at a price you both agree on right now. No matter if the market price goes up or down later, the deal is locked.

This locked-in deal is what we call a Futures Contract. In 2026, people don't just do this for wheat; they do it for gold, oil, stocks, and even Bitcoin. It is a way for people to plan for the future and protect themselves from price changes.

What is Futures Trading?

In the normal Spot Market, you pay money and get the item immediately (like buying groceries). In the Futures Market, you are trading a promise. You promise to buy or sell something at a specific price on a specific date in the future.

Read more: Spot Market vs Futures Market

The Parts of a Deal

Every futures deal has five main rules that are the same for everyone. This makes it easy to trade quickly.

Rule

What it means

The Amount

How much you are trading (e.g., 100 grams of gold).

The Expiry

The deadline date when the deal must be finished.

The Price

The price you agree on today for that future date.

The Margin

A small deposit you pay to show you are serious.

The Settlement

How you finish the deal (usually by exchanging cash).

How Does the Market Work?

You don't have to find a buyer yourself. A central place called an Exchange does it for you. They make sure everyone follows the rules and everyone gets paid.

1. Using Margin (Trading with a Deposit)

One big reason people like futures is that you don't need the full amount of money to trade.

• If you want to trade INR 1,000 worth of oil, the exchange might only ask you for a INR 100 deposit (Margin).
• This is called Leverage. It's like a double-edged sword; you can make big profits with a small amount of money, but you can also lose money very quickly if the price moves the wrong way.

Also read: Difference between Margin Trading and Leverage

2. Daily Profits and Losses

In the futures market, the exchange checks the price every day when the market closes.

• If your deal made a profit today, that money is put into your account immediately.
• If your deal loses money today, that money is taken out of your account.
• This happens every single day until you close the deal.

Different Types of Futures

There are many things you can trade in the futures market. Here are the most common ones in 2026:

1. Physical Items (Commodities)

These are real, touchable things that the world needs to run.

• Energy: Like Crude Oil and Natural Gas.
• Metals: Like Gold, Silver, and Copper.
• Food (Agri): Like Wheat, Sugar, Coffee, and Soybeans.

2. Financial Items

These are based on numbers and money, not physical goods.

• Stock Indexes: You can trade on whether the whole stock market (like the Nifty 50 or S&P 500) will go up or down.
• Currencies: You can trade the value of the US Dollar against the Indian Rupee or the Euro.
• Interest Rates: Big banks use these to protect themselves from changes in bank loan rates.

3. Digital Items (Crypto)

By 2026, trading Bitcoinand Ethereum futures has become very popular. It allows people to profit from crypto price changes without actually owning a digital wallet.

Why Do People Use Futures?

There are two main types of people in this market:

1. The Protectors (Hedgers): These are business owners. A gold jeweler might use futures to lock in gold prices so they don't have to raise prices for their customers later if gold becomes expensive.
2. The Profit Seekers (Speculators): These are traders who try to guess which way the price will go. They don't want the actual oil or gold; they just want to buy low and sell high to make a profit.

The Risks: What to Watch Out For

Futures trading is not easy, and it can be dangerous for your savings if you aren't careful.

• Big Losses: Because you are using a small deposit to control a large amount of goods, a small price change can eat up all your money.
• Fast Paced: Prices change every second. You have to keep a close eye on your trades.
• Required Balance: If your account balance drops too low because of losses, the broker will ask you for more money immediately. This is called a Margin Call.

Conclusion

Futures trading is a way to trade promises about the future price of things like gold, oil, or stocks. It is a great way for businesses to stay safe and for traders to seek profits. However, because you are trading with borrowed power (leverage), you must be very careful and learn how it works before you start spending your real money.