Spot prices and futures prices: what are the differences?

What is a futures market and a futures price?

A futures price is the quote for a contract that will be executed at some point in the future. Its value is tied to the spot price. However, while the spot price is used to make immediate trades, the futures price is used by traders who hope to make a profit by locking in the price now and closing the sale at some point in the future.

A futures contract obliges the buyer and seller to trade a particular asset at a pre-agreed price. This allows traders to take both long and short positions in their preferred market, based on their own predictions of price movements or market analysis.

When it comes to futures prices, it is important to choose a trading platform that offers ample liquidity. This will give you the assurance that you can exit a position or open a new position at the time of your choice.

Example of a futures position

Suppose the current market price of US Crude Light Oil is €6,500. We suggest a sell price of €6,497 and a buy price of €6,503 due to the spread of 6 points that we add to the underlying price.

You expect the market to rise and decide to buy ten “Oil – US Light Crude (€1)” futures CFDs. Each has a value of €1 per movement point and expires at the end of the month. As CFDs come with leverage, you will only need to lock in 10% coverage to open your position. In this example, you would make a deposit of €6,503 for a position with a value of €65,030 [(6503 x 10 CFD à terme x 1 € par point) x 10 %]. Please note, however, that while leverage can magnify your profits, it can also magnify your losses.

Some of our futures CFDs are quoted in US dollars. In these cases, realized gains or losses will be realized in dollars and then converted into euros at the prevailing exchange rate.

At the end of the month, the price of oil has risen 50 points to 6550. The new sell price is 6547 and the buy price is 6553. You decide to close your position. Since the price has risen, you will realize a gain of €440 [(6 547 – 6 503) x 10 contrats x 1 €].

However, if the price of oil had fallen by 20 points, you would have lost €260 [(6 477 – 6 503) x 10 contrats x 1 €] = -260 €

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