Hedge an existing risk
A producer, business, or investor uses a contract to reduce exposure to an unfavorable price move.
Example: an airline hedges part of its future fuel cost.Futures and options learning center
Trade the contract you understand
Learn how derivatives work, what moves their value, and how to define risk before placing an order.
Core distinctionObligation versus choice
Future
Both sides accept an obligation
Profit and loss move directly with the contract price.
Option
The buyer purchases a right
The seller accepts an obligation and receives the premium.
Simple definition. Serious risk.
Put it into practice
Reading is not doing. Work through these on the live product — each one links the exact page. Tick them off as you go; your progress stays in this browser.
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Read one market
Open the dashboard and click any market. Find its plain-language verdict and — more important — the invalidation price, the level that would prove the idea wrong.
Open the marketsSize it to your account
On that market page, use “What would this cost me?”. Enter your account size and risk %, and read the money at risk before you ever think about a trade.
Open a marketRun the A+ setup check
Right below the sizer, work the pre-trade checklist: write why you’re wrong first, check reward-to-risk, and be honest about your A-game. A green gate means you didn’t force it — not that it will win.
Try the A+ checkFollow one idea with paper money
Practise the mechanics with virtual money — an entry, a stop, an exit — before any real pressure. A stop that caps the loss near −1R is the system working, not failing.
Open paper portfolioLog it in your journal
Record the trade, the result in R, and honestly how you felt and whether you followed your plan. The small fixes that compound live in that data.
Open your journalRead the live track record
See the model’s own published, un-editable hit rate and calibration — measured, not promised. It counts avoided losses as much as wins.
See the track record
Why traders use derivatives
Derivatives move risk between participants. The same contract can serve a careful hedge or a highly leveraged speculation.
Speculate on a market view
A trader accepts price risk to seek a return from direction, volatility, time, or a relationship between contracts.
Example: a trader expects gold volatility to rise.Futures
A standardized agreement with daily consequences
A futures contract is an exchange-traded agreement to buy or sell a defined quantity under standardized terms. Traders usually close or roll the position before delivery, but the obligation remains real.
Futures contract anatomy
Read the exchange specification before the chart. The symbol alone does not tell you the financial exposure.
- Underlying
- The market being tracked, such as crude oil, gold, wheat, an equity index, or an interest rate.
- Contract size
- The quantity controlled by one contract. This converts a small quoted move into the actual account impact.
- Tick size
- The smallest permitted price change. Tick value tells you the dollar value of that move.
- Contract month
- The month when the contract expires or enters its settlement process.
- Settlement
- The contract may settle in cash or through delivery rules. Check the exact specification before trading.
Long and short
Direction changes which price move helps the position. The contract multiplier determines the size of the result.
Long futures
Gains when the futures price rises. Loses when it falls.
Short futures
Gains when the futures price falls. Loses when it rises.
Try the numbers
Futures P&L at a glance
Change the quote or direction to see how contract size magnifies each price move.
Estimated P&L before costs$2,000.00Formula: (exit - entry) × multiplier × direction
Margin and daily settlement
Futures margin is a performance bond, not a down payment and not a maximum-loss figure. Positions are marked to market, so gains and losses are credited or debited as prices change.
- Initial margin: amount generally required to open the position.
- Maintenance margin: minimum equity that must be maintained.
- Variation margin: additional funds required after losses reduce account equity.
OpenPost initial margin
DailyMark position to market
If equity fallsAdd funds or reduce exposure
Expiration, settlement, and rolling
Every contract has deadlines. Your broker may enforce an earlier closeout date than the exchange.
Offset
Place the opposite trade in the same contract to close the position.
Roll
Close the expiring month and open a later month. The price difference affects results.
Settle
Follow the cash or delivery terms. Never reach this stage by accident.
Curve language
Contango means later contracts trade above nearer contracts. Backwardation means later contracts trade below nearer contracts.
Options
A right for the buyer, an obligation for the seller
An option gives its buyer the right, but not the obligation, to buy or sell an underlying asset at a strike price by or at expiration. The buyer pays a premium to the seller.
Calls and puts
Start with the right held by the buyer, then identify the matching obligation accepted by the seller.
ContractBuyerSeller
CallRight to buyObligation to sell if assigned
PutRight to sellObligation to buy if assigned
Premium, moneyness, and time value
The option premium changes with price, time, volatility, interest rates, supply, and demand.
Option premiumMarket price of the contract
=Intrinsic valueImmediate exercise value
+Time valueValue beyond intrinsic value
In the money Has intrinsic valueAt the money Underlying is near the strikeOut of the money No intrinsic value
Expiry payoff
Long option outcome
See how strike, premium, and the underlying price combine at expiration.
Net P&L$700.00
Breakeven at expiry$53.00
Maximum buyer loss$300.00
Long-option example only. It excludes fees, spreads, early exercise, and changes before expiration.
The Greeks
Greeks are changing estimates, not promises. Each isolates one source of option-price sensitivity.
- Delta
- Estimated option-price change for a $1 move in the underlying. It also describes directional exposure.
- Gamma
- Estimated change in delta after the underlying moves. Gamma can rise sharply near expiration.
- Theta
- Estimated option value lost as one day passes, all else equal. Long options usually have negative theta.
- Vega
- Estimated sensitivity to a one-point change in implied volatility.
- Rho
- Estimated sensitivity to interest-rate changes. It matters more for longer-dated contracts.
Exercise, assignment, and settlement
Exercise is the buyer using the contractual right. Assignment requires a seller to fulfill the obligation. Settlement determines whether shares, futures, or cash change hands.
American-style
Exercise may be allowed before expiration.
European-style
Exercise occurs only at expiration.
These labels describe exercise rules, not geography. Check the exact product and broker cutoff.
Option buyer
Defined contract loss
The buyer can generally lose the premium paid plus transaction costs.
Option seller
Potentially much larger loss
An uncovered short call has theoretically unlimited loss as the underlying price rises.
Risk process
Plan the loss before the order
A trade plan is incomplete until it covers size, liquidity, events, expiration, and the conditions for leaving.
Pre-trade checklist
Use this before every futures or options order, including paper trades.
- 1
Identify the exact contract, multiplier, tick value, expiration, and settlement method.
- 2
Write down the reason for the trade and the market condition that would prove the idea wrong.
- 3
Calculate the maximum contractual loss and a realistic loss during a price gap.
- 4
Check liquidity, volume, open interest, and the bid-ask spread in the exact contract or strike.
- 5
Review scheduled economic releases, earnings, inventory reports, and other event risk.
- 6
Set position size from risk capacity, not from available buying power.
- 7
Plan the exit for profit, loss, time, expiration, assignment, and changing volatility.
- 8
Confirm that an assignment, margin call, or delivery notice would not create an unaffordable position.
A safer way to learn
Practice mechanics before adding real financial pressure.
Learn
Read the contract specification and disclosure documents.
Simulate
Practice entries, exits, rolling, assignment, and margin events.
Journal
Record the thesis, risk, expected outcome, and actual result.
Review
Compare results after costs and identify repeatable mistakes.
Reference
Terms worth knowing
Underlying
The asset or reference value behind a derivative.
Leverage
Large market exposure supported by less upfront capital.
Open interest
The number of outstanding contracts.
Implied volatility
The future movement reflected in an option price by a pricing model.
Liquidity
The ability to trade with adequate volume and a reasonable bid-ask spread.
Assignment
The process requiring an option writer to fulfill the contract.