Futures contracts explained: specs, clearing, expiry and settlement

A futures contract is a standardized, exchange-traded agreement to buy or sell a set quantity of something — 1,000 barrels of crude oil, 100 troy ounces of gold, $50 times the S&P 500 index — at a price agreed today, for settlement on a fixed future date. Both sides are bound. The buyer (the "long") gains if the price rises; the seller (the "short") gains if it falls. Nobody pays the full value up front; each side posts a deposit and settles gains and losses in cash every day.

Futures exist because producers and users of commodities want to lock in prices months ahead, and because speculators are willing to take the other side. Today they also cover stock indexes, interest rates and currencies, and they set the reference prices quoted on the news: when a headline says "oil rose to $104", it almost always means the nearest WTI futures contract. This guide explains how a contract is specified, what the clearinghouse does, how daily mark-to-market works, what happens at expiry, and the difference between physical delivery and cash settlement. For the family of derivatives futures belong to, start with Derivatives explained: forwards, futures, options and swaps.

What makes a contract a "future"

A forward contract is a private deal: two parties agree today on a price for delivery later, with every term negotiated. A future takes the same idea and makes it uniform. The exchange writes a contract specification, and anyone who trades that contract accepts exactly the same terms. That uniformity is what lets thousands of strangers trade it on a screen and close a position by taking the opposite trade with someone else.

Every specification answers the same questions:

• Underlying and grade. What is delivered, to what standard. NYMEX WTI is light, sweet crude delivered at Cushing, Oklahoma; COMEX gold is 100 troy ounces of gold.
• Contract size. How much one contract covers. This is the multiplier that turns a price into dollars.
• Price quotation and minimum tick. The unit the price is quoted in and the smallest allowed change.
• Listed months. Which delivery months trade. Crude oil lists a long run of consecutive months; the E-mini S&P 500 lists quarterly months.
• Last trading day and settlement method. When trading stops and how open positions are closed out: by delivering the underlying or by a final cash payment.

Tick value: the number that turns prices into dollars

The tick value is the contract size multiplied by the minimum price move. It tells you what one tick, and therefore any price change, is worth on one contract.

Run it through the table:

• WTI crude (CL): 1,000 barrels × $0.01 = $10 per tick, so a $1 move in the price of a barrel is $1,000 on one contract.
• Gold (GC): 100 ounces × $0.10 = $10 per tick; a $1 move in the price of an ounce is $100.
• E-mini S&P 500 (ES): $50 × 0.25 points = $12.50 per tick; one index point is $50. The Micro E-mini (MES) is one-tenth the size: $5 per point, $1.25 per tick.
• 10-year T-note (ZN): the contract covers $100,000 face value and is quoted in points of par; its outright minimum move is one-half of 1/32 of a point, which works out to $15.625.
• Corn (ZC): 5,000 bushels × one-quarter cent = $12.50 per tick.

A worked example with real prices

The front-month WTI contract closed the week of October 30, 2026 at $104.10 a barrel in Finabase's chart data. One contract therefore controlled 1,000 × $104.10 = $104,100 of crude oil. A trader who bought at $104.10 and sold at $104.60 would make 50 ticks × $10 = $500, before commissions and fees; a fall to $103.60 would cost the same $500. The same week, front-month gold (GC=F) closed at $3,977.70 an ounce, so one gold contract controlled 100 × $3,977.70 = $397,770 of metal.

Those notional values are why futures are leveraged: the deposit needed to hold a contract is a small fraction of what it controls. How that deposit works, and how fast it can disappear, is the subject of Futures margin and leverage: initial, maintenance and margin calls.

The clearinghouse and daily mark-to-market

When you buy a futures contract, the seller on the other side of the trade is a stranger. You never deal with them again. Once the trade is matched, the exchange's clearinghouse (CME Clearing for CME Group's exchanges) steps in between: it becomes the seller to the buyer and the buyer to the seller. Each trader's obligation is now to the clearinghouse, which guarantees performance on both sides. That is what removes counterparty risk, the main weakness of private forwards.

The clearinghouse protects itself in two ways. First, every position must be backed by margin, a good-faith deposit held through a clearing member firm. Second, every position is marked to market at the end of each trading day. The exchange publishes an official settlement price for each contract, and every account is credited or debited with the change since the previous day's settlement. The CFTC's investor material describes it as accounts adjusted to each trading day's market value at the close.

An example, with illustrative settlement prices:

After three days the long is up $1,200 and the short is down $1,200, and that money has already moved. Because losses are collected daily, nobody can quietly accumulate a debt they will fail to pay at expiry. The daily cash transfers are called variation margin.

Front month, expiry and the continuous chart

Each contract month is a separate instrument with its own price. The front month is the nearest month still trading, and it usually carries the most volume. Charts labeled "crude oil" or "CL=F" are continuous series: they show the front month and switch to the next contract when the front one nears expiry.

The chart shows how wide the range can be in five years. The highest weekly close was $120.67 (week of June 6, 2022) and the lowest was $56.66 (week of December 15, 2025). In 2026 the front month rose from $59.12 in the first week of January to a weekly high of $111.54 (week of March 30), and closed the week of October 30 at $104.10. A continuous chart is the right tool for seeing where prices have been, but it is not a record of what a holder earned, because holding exposure means rolling from contract to contract; the gap between the two is the subject of Contango, backwardation and roll yield: why USO lags oil. For what oil prices mean for inflation and growth, see Oil prices and the economy: WTI, Brent, gasoline and inflation.

What happens at expiry

Every contract has a last trading day. For WTI, trading in a contract ends a few business days before the 25th of the month before delivery — the May 2020 contract, for instance, stopped trading on April 21, 2020. After the last trading day, any position still open must be settled under the contract's rules. Most participants never get there: they offset (sell what they bought, or buy back what they sold) or roll into a later month beforehand. Many retail brokers require clients to exit physically delivered contracts well before the delivery window opens.

Physical delivery versus cash settlement

Contracts settle in one of two ways.

• Physical delivery. A long still holding the contract after the last trading day must take delivery of the underlying and pay the final price; a short must deliver it. WTI crude is delivered at Cushing, Oklahoma. Gold, corn and the 10-year T-note are also physically delivered (for the T-note, the short delivers one of a basket of eligible Treasury notes).
• Cash settlement. No goods change hands. The final mark-to-market is made against a reference value, and the position simply disappears. The E-mini and Micro E-mini S&P 500 are cash-settled, which makes sense: nobody can deliver an index.

Physical delivery is what keeps a futures price tied to the real market for the underlying: near expiry, the futures price and the price of the physical good at the delivery point must converge, or someone could profit by buying one and delivering against the other.

When delivery bites: April 20, 2020

The clearest demonstration that delivery matters came on April 20, 2020, the day before the May 2020 WTI contract expired. According to the US Energy Information Administration, the front-month contract traded below zero for the first time since NYMEX crude futures began in 1983, reaching about −$40.32 a barrel in the afternoon. The Congressional Research Service reports that the May contract closed at about −$37.62, while the June contract closed at $20.43. EIA's explanation: holders who could not take delivery found few buyers, and storage at Cushing was scarce and costly, so some paid others to take their contracts. A cash-settled index future cannot do this; a physically delivered one can, when the physical market has nowhere to put the goods.

Who uses futures

• Hedgers hold or need the physical good and use futures to fix a price. A refiner that will buy crude next quarter can go long now; a farmer who will harvest corn in the fall can go short. The futures gain or loss offsets the change in what they pay or receive in the physical market.
• Speculators have no physical exposure and trade for profit. They supply the liquidity hedgers need.
• Asset managers use index and Treasury futures to adjust exposure quickly without trading every underlying stock or bond. Many commodity funds hold only futures; see Commodities explained: energy, metals, crops and how to own them.

An educational outline of a hedge, with illustrative numbers: a refiner expects to buy 100,000 barrels in three months and goes long 100 contracts at $80. If the physical price rises to $90, the refiner pays $1 million more for its crude, but the futures gain about 100 × 1,000 × $10 = $1 million. If the price falls to $70, the crude is cheaper and the futures lose about the same amount. Either way the cost is close to $80 a barrel. It is close, not exact, because the refiner's local price and the Cushing futures price never move perfectly together; that residual is called basis risk.

Pitfalls and limitations

• Leverage cuts both ways. At $104.10, a 5.8% drop in crude — $6 a barrel — is a $6,000 loss on one contract, which can exceed the deposit backing it. Losses are not limited to the money posted.
• The continuous chart is not a return. Rolling from one month to the next has a cost or a benefit that a spliced chart hides.
• Delivery risk is real. Holding a physically delivered contract into its final days is a decision to make or take delivery, as May 2020 showed.
• Specs change. Exchanges revise ticks, hours, months and margin requirements. Check the exchange's own page before relying on any number, including the ones above.
• Liquidity is concentrated. The front month and a few nearby months trade heavily; distant months can have wide bid-ask spreads (see Liquidity and slippage: volume, depth, spread and market impact).

Futures compared with forwards, options and ETFs

Options give the right without the obligation; see Options basics: how calls and puts work, with payoff diagrams.

How Finabase does it

Finabase's Futures page lists 61 contracts in one table — stock-index futures (S&P 500, Nasdaq, Dow, Russell 2000, DAX, Nikkei 225 and others), commodities (gold, silver, copper, WTI and Brent crude, natural gas, RBOB gasoline, wheat, corn, soybeans, coffee, platinum and others) and government-bond futures (US 2-year, 10-year and 30-year, the Euro-Bund and others). Each row shows the last price, the day's change, returns from one week to two years, the 52-week range and 50- and 200-day averages, and the page can switch to a map, chart grid or signals view.

The app names these series rather than using exchange codes: WTI crude is CRUDEOILWTI=F and gold is GOLD=F. Each opens a symbol page with a quote, chart, news and discussion; the financials, valuation, earnings and options tabs are hidden because a futures contract has none of those. Like other quote sites, these pages show a continuous front-month price, not a particular contract month's specification, margin or expiry date. The table and the WTI chart in this article are ours, built from CME Group's published specifications and Finabase's chart data.

Frequently asked questions

Do I have to take delivery of oil if I buy a crude futures contract?

Only if you still hold a physically delivered contract after its last trading day. Almost every trader closes the position or rolls it to a later month before then, and many retail brokers require clients to exit before the delivery period starts.

What is the front month?

The front month is the nearest delivery month that is still trading. It is usually the most active contract, and it is the one quoted in headlines and in continuous charts such as CL=F.

How much is one tick worth on a futures contract?

One tick is worth the contract size times the minimum price move. For WTI crude that is 1,000 barrels × $0.01 = $10; for the E-mini S&P 500 it is $50 × 0.25 = $12.50.

Why can't the other side of my trade default?

Because the clearinghouse becomes the counterparty to both sides and collects losses in cash every day. The daily mark-to-market and the margin deposits it requires are what let it guarantee every contract.

Are futures only for commodities?

No. Futures trade on stock indexes, Treasury notes and bonds, interest rates and currencies as well as on energy, metals and crops. Index and Treasury futures are among the most heavily traded contracts in the world.

Summary

A futures contract is a standardized promise to buy or sell a fixed quantity at a set price on a future date, traded on an exchange and guaranteed by a clearinghouse. The contract size and tick turn prices into dollars — $10 per cent on a barrel of WTI, $50 per point on the E-mini S&P 500 — and the notional values are large: about $104,100 for one crude contract at the October 2026 price. Gains and losses settle in cash every day, which is what lets strangers trade without credit risk. At expiry, contracts settle by physical delivery or in cash, and the April 2020 plunge below zero in WTI showed that the delivery rules are not a technicality. Before trading, read the exchange's specification and understand the margin it requires.