Stock market futures are standardized contracts that obligate the buyer to purchase — or the seller to sell — an underlying asset (often an index) at a predetermined price on a specified future date. They are widely used by traders to hedge risk or to speculate on market direction.
How it works
Futures are derivatives: they derive value from an underlying index, commodity, or asset. Index futures (e.g., S&P 500 futures) settle in cash and help investors hedge or gain exposure to a whole market quickly. Futures often use leverage, meaning small price moves can have amplified gains or losses.
Why people use futures
Hedging portfolio risk (protecting gains or offsetting losses).
Speculating on market direction with leverage.
Access to continuous trading outside regular market hours through futures markets.
Risks
Because futures are leveraged, small price moves can cause large losses. They have expiration dates and margin requirements — be cautious and fully understand how margin calls and settlement work before trading.
Dylan D. Davis
