What is the futures market?
The futures market is a global financial marketplace where participants trade standardized contracts to buy or sell an asset at a predetermined price on a set future date. These contracts are traded on regulated futures exchanges and cover a wide range of asset classes, including commodities, stock indexes, interest rates, currencies, cryptocurrencies, and more.
Unlike the traditional stock market, the futures market operates nearly 24 hours a day, from Sunday evening to Friday afternoon, allowing traders to react to news and price changes virtually around the clock. It provides both professional and retail traders with access to international markets and the ability to manage price risk, speculate on market direction, or hedge existing positions.
Why the futures market matters
Futures markets are a cornerstone of modern finance. They help stabilize prices, increase transparency, and support efficient capital allocation. Market participants fall broadly into two categories:
- Hedgers: Use futures to manage exposure to price fluctuations. For example, an airline might buy fuel futures to lock in prices, while a wheat farmer might sell wheat futures to secure a minimum income before harvest.
- Speculators: Take on risk in hopes of profiting from price movement. These include individual traders, hedge funds, proprietary trading firms, and market makers.
This interplay between hedgers and speculators brings liquidity and efficiency to the marketplace.
What is a futures exchange?
A futures exchange is a centralized venue where futures contracts are listed and traded. The exchange ensures fairness, transparency, and orderly execution. It sets contract specifications (such as tick size, contract size, and expiration dates) and enforces high level risk controls via its clearinghouse.
The largest and most well-known futures exchange in the U.S. is CME Group, which operates exchanges including:
- Chicago Mercantile Exchange (CME)
- Chicago Board of Trade (CBOT)
- New York Mercantile Exchange (NYMEX)
- Commodity Exchange Inc. (COMEX)
Almost all futures trading today occurs electronically via platforms like CME Globex, replacing the open-outcry pits of the past.
What are futures contracts?
Futures contracts, often referred to simply as “futures,” are binding agreements to buy or sell an underlying asset at a set price on a specific date. These contracts are standardized by the exchange, meaning each contract has a fixed size, tick value, margin requirement, and expiration schedule.
For example, one crude oil futures contract (/CL) typically represents 1,000 barrels of oil. If oil is trading at $75 per barrel, the contract’s notional value is $75,000. Traders don’t need the full amount to enter a position; instead, they post a fraction of it as margin.
Most traders don’t intend to take physical delivery. They usually close their position before expiration by taking the opposite side of the trade.
Who regulates the futures market?
The U.S. futures market is regulated by the Commodity Futures Trading Commission (CFTC), an independent federal agency established in 1974. The CFTC promotes transparency, prevents market manipulation and fraud, and ensures that futures markets remain open, fair, and competitive.
The National Futures Association (NFA) is a self-regulatory organization that also oversees participants in the futures industry. All futures brokers and firms must be registered with the CFTC and be members of the NFA.
What is a futures broker?
A futures broker acts as the intermediary between traders and the futures exchanges. Brokers provide access to the markets, handle order routing, and may offer research, risk management tools, or customer support. Most brokers charge a commission or fee for each trade. At MetroTrade, we streamline this process through MetroTrader, our fast and intuitive trading platform.
Speculators vs. Hedgers
Understanding the roles of speculators and hedgers is essential to grasp how the futures market functions:
Speculators
Speculators try to profit from price changes in the futures market. They take on market risk in exchange for the chance to earn returns. For example, a trader might buy equity index futures if they believe the market will rise, or short oil futures if they expect prices to fall. Speculators play a key role in providing liquidity and ensuring that markets remain active and responsive to new information.
Hedgers
Hedgers use futures to reduce or offset risk they already have from exposure to physical assets or financial positions. For instance, a coffee importer might buy coffee futures to lock in prices and guard against rising costs. Similarly, a bond fund manager might short Treasury futures to hedge against the risk of rising interest rates. While hedgers are focused on protection rather than profit, their participation is critical to market stability.
These two groups have different objectives, but depend on each other to keep the futures market efficient and liquid.
Key characteristics of the futures market
| Characteristic | Description |
| Regulated and transparent | Overseen by the CFTC and NFA, with standardized rules and reporting |
| Nearly 24-hour access | Sunday evening to Friday afternoon trading across global time zones |
| Deep liquidity | Popular contracts (like the S&P 500 E-mini) trade millions of contracts daily |
| Leveraged trading | Traders post a margin, not the full value of the contract |
| Broad asset coverage | Includes equities, commodities, currencies, crypto, rates, and more |
| No pattern day trading (PDT) | No $25K minimum required for active trading |
Takeaway
The futures market is a global, electronic ecosystem that allows traders to speculate or hedge across nearly every major asset class. It’s fast-moving, transparent, and essential to the modern financial system. Whether you’re looking to manage risk or explore new opportunities, understanding how the futures market works is your first step.
In the next lesson, we’ll take a closer look at futures contracts themselves: how they’re structured, how to read them, and what makes them different from other financial instruments.
Frequently Asked Questions
What is the purpose of the futures market?
The futures market exists to help traders and institutions manage risk and speculate on price movements across global asset classes like commodities, indexes, and currencies.
Who participates in the futures market?
The main participants are hedgers, who use futures to reduce risk, and speculators, who seek profit by predicting price changes. Both groups add liquidity and stability to the market.
What is a futures exchange?
A futures exchange is a regulated marketplace where futures contracts are listed and traded. Examples include the CME, CBOT, NYMEX, and COMEX, which are now part of the CME Group.
Is the futures market regulated?
Yes. In the U.S., the CFTC and NFA regulate the futures market. They enforce rules to prevent fraud, ensure fairness, and protect traders and investors.
How does trading futures work?
Futures contracts are bought and sold electronically through brokers. Traders post margin to enter positions and can close them before expiration to avoid delivery of the asset.
What makes the futures market different from the stock market?
Unlike stocks, futures are leveraged, don’t involve ownership, and trade nearly 24 hours a day. They also cover a wider range of assets, from crude oil to bitcoin.