Futures, explained honestly
A plain-English reference for people who want to understand futures from the ground up: what a contract obliges you to do, how margin and daily settlement work, why futures prices differ from spot, how hedgers use them, and how they are taxed in the US and Canada. We explain how they work. We don't sell signals or funded-trader challenges.
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New to futures? Read these in order. Each one builds on the last.
A futures contract is a standardised, exchange-traded agreement to buy or sell a set amount of something at a set price on a set date. Here is how it works, with real CME examples.
Read the explainer →Who lists futures in the US and Canada, how an electronic order book matches trades, how the clearing house steps in the middle, and how money moves each day.
Read the explainer →Futures and forwards both lock in a price for a future date. They differ in standardisation, where they trade, counterparty risk, and when gains and losses are paid.
Read the explainer →Futures margin is a performance bond, not a loan. See how initial and maintenance margin work, how daily settlement moves cash, and when a margin call comes, with exact arithmetic.
Read the explainer →How to read a futures spec sheet: contract size, tick size and tick value, month codes like ESZ26, settlement type and last trading day, with real CME, ICE and Montréal Exchange specs.
Read the explainer →Why a futures price differs from the spot price: financing, storage and income (cost of carry), how fair value is calculated, what basis means, and why prices converge at expiry.
Read the explainer →Contango means later futures cost more than near ones; backwardation means the reverse. Here is why each happens, how roll yield works with real arithmetic, and real oil market examples.
Read the explainer →Some futures end with real oil, grain or gold changing hands; others end with a cash payment. How delivery works, why first notice day matters, and how index futures cash settle.
Read the explainer →Every futures contract expires, so long-term positions must be rolled into a later month. How rolling works, CME's equity roll dates, what a roll really costs, and how continuous charts are built.
Read the explainer →Futures markets bring together hedgers who want to shed price risk, speculators who take it on, spreaders and market makers. How each works and how the CFTC classifies them.
Read the explainer →Markets
Index, rates, oil, gold, grains, currencies and bitcoin, each with the exchange's real contract specs.
How stock index futures work, with real CME and Montreal Exchange specs, tick arithmetic for ES, MES, NQ and SXF, fair value, and overnight trading.
Read the explainer →How WTI and Brent crude oil futures work, with real NYMEX and ICE specs, tick arithmetic, Cushing delivery, expiry rules, and what shapes the oil futures curve.
Read the explainer →How interest rate futures work: why SOFR and CORRA futures are priced as 100 minus the rate, how Treasury and CGB bond futures tick, with real exchange specs.
Read the explainer →Hedging & trading
How producers, buyers and funds use futures to manage price risk, and where hedges go wrong.
Short and long hedges explained with real contract specs: how a hedge locks in a price, how to size it with a hedge ratio, and why basis risk means no hedge is perfect.
Read the explainer →Worked examples of a Canadian canola grower and an airline buying jet fuel, with real contract specs, plus what went wrong in the 1996 hedge-to-arrive crisis and airline fuel hedging.
Read the explainer →How commodity ETFs hold futures, why roll costs make them drift from spot prices, what USO's SEC filings show about April 2020, and how leveraged funds reset daily.
Read the explainer →Risk
Leverage, gaps, margin calls, the day oil went negative, and the blowups that rewrote the rules.
The real risks of futures: leverage, losses larger than your deposit, overnight gaps, thin markets, margin increases, delivery and broker risk, with worked arithmetic on real contracts.
Read the explainer →How the May 2020 WTI crude oil futures contract settled at -$37.63 a barrel: storage at Cushing, physical delivery, the settlement mechanics, who lost money, and what the CFTC staff report found.
Read the explainer →What really happened at Barings in 1995, Metallgesellschaft in 1993, Amaranth in 2006 and MF Global in 2011, based on official reports, with the arithmetic and the lesson each one teaches.
Read the explainer →Taxes & regulation
How futures are taxed and regulated in the United States and Canada. Education, not tax advice.
How the IRS taxes futures: the Section 1256 60/40 split, year-end mark-to-market, Form 6781, the loss carryback election, and worked examples for 2026.
Read the explainer →How the CRA taxes futures: capital vs income treatment, the hedger and speculator rules in IT-346R, the 50% inclusion rate, losses, and worked examples.
Read the explainer →How futures account money is protected: CFTC segregation rules, the residual interest rule, why SIPC excludes futures, CIPF in Canada, and what MF Global taught.
Read the explainer →Deep dives
Term structure, cheapest-to-deliver, rate expectations, index rolls and margin models, with the maths worked through.
Why commodity futures curves slope the way they do: the theory of storage, convenience yield, Keynes's normal backwardation, and what Gorton, Hayashi and Rouwenhorst found about inventories.
Read the explainer →How CBOT Treasury futures are delivered: conversion factors, gross and net basis, implied repo rate, the delivery options, and a worked cheapest-to-deliver calculation.
Read the explainer →How one-month and three-month SOFR futures settle, how to back out implied policy paths and FOMC meeting probabilities step by step, and how Montreal Exchange CORRA futures differ.
Read the explainer →Institutional
The basis trade, clearing members, CCP default management, trading houses and hedge accounting: the institutional side of futures.
How the Treasury cash-futures basis trade works: implied repo, financing, leverage, who sits on each side in CFTC data, what happened in March 2020, and the SEC clearing mandate.
Read the explainer →How clearing houses manage default risk under the CPMI-IOSCO principles: margin models, cover 2, default waterfalls, auctions, skin in the game, and lessons from the 2018 Einar Aas default.
Read the explainer →What happened in LME nickel in March 2022: the short squeeze, margin calls, the suspension and cancelled trades, what the Oliver Wyman, FCA and Bank of England reviews found, and the court rulings.
Read the explainer →Quick answers
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From the TradingFuse portfolio
How Do Futures Work? is an education site in the TradingFuse portfolio. The other publications run a daily editorial. Recent notes below; click through for the live tape.
Why this site exists
Most futures content is selling something: a funded-trader challenge, a signals group, a broker referral, an indicator. This site is a straightforward reference, published openly by TradingFuse, written to be accurate rather than persuasive.
The honest truth, stated up front: futures are leveraged, losses can exceed your deposit, and markets can gap past your stop. Understanding how futures work won't change those odds on its own, but trading them without understanding them is far worse.
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