Futures Trading

A futures contract is an agreement to buy or sell an asset at a set price on a future date. Futures trading is buying and selling those contracts on an exchange such as CME Group. Almost nobody holds to delivery: traders close the position first and keep the difference in price.

Two groups use the market. Hedgers, like a farmer locking in a price for a harvest or a fund protecting a portfolio, use futures to remove price risk. Speculators, which includes every prop trader, take that risk on to profit from the move. Between them they set benchmark prices for oil, gold, grains, rates and stock indexes.

Contracts cover equity indexes (ES, NQ, YM, RTY), energy (CL, NG), metals (GC, SI), interest rates (ZN, ZB), currencies (6E) and agricultural goods. Most trade nearly 24 hours a day, five days a week.

Futures run on margin: a deposit far smaller than the contract's full value controls the whole position. That leverage magnifies gains and losses alike, which is why position size matters more here than in stocks. Micro contracts, one tenth the size of the E-minis, make small accounts workable.

With a prop firm you never post margin or risk your own capital beyond the fee: the firm sets the contract limits and the drawdown, and you trade inside them. In the US, futures profits are generally taxed under the 60/40 rule, 60 percent long-term and 40 percent short-term, whatever the holding period; check with a tax professional for your own case.