Many people think that futures are something complicated, but in reality, it is simply an agreement to buy or sell something in the future at a fixed price. Sounds simple? It turns out that it’s not, especially when it comes to risks.

Let’s figure out what futures really are. Essentially, they are derivative contracts that allow you to make deals on assets — from coffee and oil to stocks and crypto. An airline can lock in the price of fuel to avoid sudden jumps. A fuel distributor can hedge against falling prices. Both parties know what they will get for the agreed-upon price.

Not only companies that want the actual product operate in the futures market. There are also speculators — people who just play on price fluctuations of the contract. If the price rises, the contract becomes more expensive, and they can sell it for a profit. This creates a liquid market where something is always happening.

Regarding stocks, futures are not only for commodities. You can trade futures on individual companies, ETFs, even bonds and Bitcoin. Someone wants to hedge their portfolio against a decline — short selling a futures contract on the S&P 500 does that. Someone confident in growth — buys a long contract for more leverage.

Here we reach the real problem. What are futures without leverage? Just slow playing. Most traders borrow money to trade on the futures market — this is the main way to turn small price fluctuations into serious profits. But here’s the trap: if the market moves against you, you can lose more than you invested.

Leverage in the commodity market is much more liberal than in the stock market. A broker can allow you 10:1 or even 20:1 — much higher than you would get in securities trading. Sounds great, but the math is harsh: a 5% price change with 10:1 leverage means 50% profit or loss. The CFTC explicitly warns that futures are complex, volatile, and not recommended for beginners.

Each futures contract is standardized — it specifies the unit of measurement, quantity of the commodity, currency, and quality. If you plan to start, be careful: most ordinary people don’t want to end up with a wagon of pigs in their yard when the contract expires.

Getting started with futures trading is simple: open an account with a broker. They will ask about your experience, income, net capital — this is to assess your risk tolerance. Commissions and fees vary with each broker. Some offer research and consultations, others just quotes and charts.

If you’re a beginner, try paper trading. It’s an invaluable way to understand how futures work without risking real money. Even experienced traders test new strategies on a virtual account. Spend time practicing until you’re confident you understand how markets, leverage, and commissions interact with your portfolio.