Trading Futures: What does it Involve?

There are two aspects that distinguish futures trading from trading in stocks or bonds.

• A futures contract has a specified lot size. So, there could be a futures contract of 100 shares of IBM or 50 shares of Cisco Systems. You could also opt for an index. For instance, one could opt for purchasing the E-mini S&P 500 futures contract. This gives you exposure to all the stocks in this index.


• You can trade with margin payment. This means that when you purchase a futures contract, you do not have to pay the entire amount of the contract. You only need to pay a specified margin amount. For instance, you could purchase a futures contract for 100 shares of IBM worth $102 per share at a 20% margin. This means that instead of paying $10,200 (100 x $102), you need to pay only $2040 (20% of $10,200). This offers substantial leverage to the investor...