Types of Futures Contracts

Trade all types of futures contracts with NinjaTrader or Interactive Brokers as your online brokerage.

Is your favorite stock on a tear, but you don’t have enough money to buy 100 shares? Some investors in this situation turn to futures contracts to get more exposure to their favorite assets. Futures contracts allow a buyer to secure a fixed price for a fixed number of assets. This transaction goes through on the future contract’s expiration date. Futures contracts exist for many asset classes, such as commodities, stocks, currencies and others.

What is a Futures Contract?

A futures contract is a derivative that gives the buyer leveraged exposure to a commodity asset. Future contracts give the buyer the obligation to buy a specific asset at a set price on the expiration date. Sellers are obligated to sell the asset on the expiration date at the agreed-upon price. Buyers hope the asset’s price will increase during the contract, while sellers hope the asset’s price falls or stays flat. Farmers frequently use futures contracts to lock in prices for livestock and crops to avoid fluctuations.

Categories of Futures Contracts

Investors can choose from numerous futures contracts, but each of them is in one of the following categories.

Physical Futures

Physical futures involve the physical delivery of assets after the expiration date. Farmers who buy crop futures will receive crops at the end of the contract. Crude oil is another popular physical future, and each futures contract involves 1,000 barrels of crude oil.

Financial Futures

These futures focus on equities and other securities that do not require a physical delivery. You may receive stock, Treasury bills, CDs and other assets through financial futures. 

6 Types of Futures Contracts

Investors can get exposure to several types of futures contracts. These are some of the top choices to consider.

Stock Futures

Stock futures allow you to lock in a price to buy or sell 100 shares of a stock. These contracts get exercised at expiry. Stock futures contract uses leverage to give investors more exposure to the underlying asset. Investors have to consider macroeconomic conditions and analyze the underlying stock. The underlying stock can perform differently from the broader market.

Index Futures

Index futures give investors extra exposure to indexes, such as the S&P 500 and Nasdaq 100. These indexes trade hands at expiration. Investors have to consider how the indexes allocate their funds across market sectors and individual stocks. The S&P 500 is a broader index that focuses on large-cap companies, while the Nasdaq 100 is a tech-oriented index fund that also focuses on large-cap companies.

Currency Futures

Currency futures let you lock in a price for a currency. The currency then swaps hands at expiration. Investors should consider each country’s fiscal policy, inflation, interest rate changes and other factors when assessing currencies.

Commodity Futures

Commodity futures give investors leveraged exposure to commodities like gold, livestock, crops and oil. Some of these commodities involve physical delivery, and the catalysts depend on the commodity. Investors have to consider weather, diseases, and other factors for livestock and crops. The factors influencing commodity prices are different for gold and oil.

Interest Rate Futures

Interest rate futures are derivatives that give investors exposure to changes in interest rates. When interest rates go up, the value of an interest rate futures contract will decrease. That’s because interest rate hikes make new debt more desirable, and old debt becomes less desirable in the process. This change leads to lower prices on existing bonds to compensate for the new rates being higher. However, declining interest rates can prop up an interest rate futures contract. 

VIX Futures

VIX futures give investors leveraged exposure to market price volatility. VIX acts as a useful hedge when the stock market goes down. VIX tends to gain value as markets become more volatile. 

Benzinga's Best Futures Exchange

Investors can choose from many types of futures contracts. They can choose from several assets and expiration dates, but it is important to choose the right futures exchange for your needs. These are some of the top futures exchanges to consider.

Diversify Your Portfolio With Futures Contracts

Futures contracts give investors leveraged exposure to various assets. You can choose to invest in physical or financial futures, and each of those categories has many sectors to consider. Investors should be aware of their risk tolerance and financial goals before opening futures contract positions.

Frequently Asked Questions