Learn how futures contracts work, what tick values mean, and why futures are the instrument of choice for most prop firm traders.

Understanding Futures

A futures contract is a legally binding agreement to buy or sell a specific asset at a predetermined price on a specific date in the future. That sounds complex, but the concept is surprisingly simple.

Imagine a wheat farmer. It's spring and he's planting his crop. He won't harvest until fall, and he's worried that wheat prices might drop by then. A cereal company, meanwhile, worries prices might rise. They agree: "Let's lock in a price of $5.50 per bushel for delivery in September." Both parties eliminate their price uncertainty. That agreement is a futures contract.

Modern Futures Trading

Today, you don't need to be a farmer or cereal company to trade futures. Most futures contracts are traded speculatively by traders who have no intention of taking delivery of wheat, oil, or gold. Instead, they close their positions before the contract expires, capturing the profit or loss from the price change.

Futures are traded on regulated exchanges, with the CME Group (Chicago Mercantile Exchange) being the world's largest. This means:

• Standardized contracts: Every ES (S&P 500) contract is identical — no negotiating terms
• Central clearing: The exchange guarantees every trade, eliminating counterparty risk
• Price transparency: Everyone sees the same prices in real time
• Regulation: Governed by the CFTC (Commodity Futures Trading Commission) in the US

Why Prop Firm Traders Love Futures

Futures have become the dominant instrument for prop firm trading, and for good reason:

1. Leverage: Control large positions with relatively small margin deposits
2. Liquidity: Major contracts like ES and NQ have enormous volume, ensuring tight spreads and easy execution
3. Tax advantages: In the US, futures profits may qualify for favorable 60/40 tax treatment
4. Extended hours: Most futures trade nearly 23 hours per day, Sunday through Friday
5. Simplicity: Instead of choosing among thousands of stocks, you focus on a handful of contracts
6. Micro contracts: MES and MNQ let you trade the same markets with 1/10th the capital requirement

How a Futures Trade Works

1. You believe the S&P 500 index will rise today
2. You buy 1 ES (E-mini S&P 500) contract at 5,000.00
3. Each point of movement is worth $50 per contract
4. The S&P 500 rises to 5,010.00 — a 10-point move
5. You sell your contract at 5,010.00
6. Your profit: 10 points × $50 = $500 (minus commissions)

If instead the S&P 500 had fallen to 4,990.00, your loss would be 10 × $50 = $500.

Key Terminology

• Going long: Buying a contract (betting the price will rise)
• Going short: Selling a contract (betting the price will fall)
• Open interest: Total number of outstanding contracts
• Volume: Number of contracts traded in a given period
• Settlement: The process of finalizing the trade at expiration

The beauty of futures is their simplicity and transparency. One product, one exchange, clear rules. This is why the majority of prop firms — including Apex, Topstep, and many others — focus on futures.

Key takeaways

• A futures contract is an agreement to buy or sell an asset at a set price on a future date
• Futures are standardized and traded on regulated exchanges like the CME
• You don't need to hold until expiration — most traders close positions the same day
• Futures offer leverage, transparency, and deep liquidity for active traders

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What's in the full course

1. 1What Are Futures ContractsReading
2. 2Tick Values and Contract Specs🔒
3. 3Margin and Margin Calls🔒
4. 4Popular Futures Products: ES, NQ, CL, and GC🔒
5. 5Contract Months and Expiration🔒
6. 6Futures vs Forex Comparison🔒