Spot vs Futures: What Traders Need to Know

বাংলায় পড়ুন

Spot and futures can track the same underlying market while creating very different risks. Spot normally represents an immediate transaction or ownership claim; a futures contract is an agreement tied to a specified future settlement date and contract terms.

Learning objective

This lesson compares ownership, expiry, leverage, funding, basis and operational risk so a trader can identify which product is actually shown on a chart or order ticket.

How spot works

In a spot market, the transaction is priced for immediate or near-immediate settlement under the venue's rules. Buying spot shares normally creates ownership of the shares. Buying spot Bitcoin on an exchange may create an exchange account claim until the asset is withdrawn. Physical gold, allocated bullion, exchange-traded products and unallocated accounts all have different legal structures even when described as “spot exposure”.

Spot does not mean risk-free or cost-free. Custody, counterparty, borrowing, storage, conversion and overnight financing may still apply.

How futures work

A futures contract specifies the underlying reference, contract size, expiry and settlement method. The trader posts margin rather than paying the full notional value. Profit and loss are marked as price moves, and insufficient margin can lead to forced liquidation.

Some contracts settle in cash; others can involve delivery if held into the relevant period. Traders must know the last trading day, settlement rules and when their broker requires a roll or close.

Basis and the forward curve

The difference between a futures price and the spot price is the basis. Futures can trade above spot, often called contango, or below spot, often called backwardation. Interest rates, storage, insurance, convenience yield, dividends, borrowing demand and market positioning can affect the relationship.

As expiry approaches, futures and the settlement reference usually converge under the contract rules. A futures chart can therefore move differently from spot even without a change in the underlying narrative.

Worked example

Assume a hypothetical asset trades at £100 spot while a three-month futures contract trades at £103. A trader buys the future expecting the spot price to rise. At expiry, spot rises to £102 and the futures converges to £102.

The underlying spot rose £2, but the futures position bought at £103 loses £1 per unit. Direction alone was not enough; the initial £3 premium and convergence mattered. Commission, spread and margin financing would further affect the result.

Rolling a futures position

To maintain exposure beyond expiry, a trader normally closes the near contract and opens a later one. The price difference and execution cost create roll yield. Repeated rolls in contango can reduce returns; backwardation can have the opposite effect, but neither relationship is permanent.

Continuous futures charts may adjust historical prices to remove roll gaps. They are useful for analysis but may not reproduce the exact profit and loss of a real sequence of contracts.

Common mistakes

• Treating margin as the maximum possible loss.
• Comparing a futures price directly with spot without checking expiry and basis.
• Holding into expiry without understanding settlement or delivery.
• Ignoring roll cost, funding and contract multipliers.
• Assuming a continuous chart is directly tradable.
• Using a spot stop distance without converting it to futures tick value.
• Confusing exchange custody of spot assets with direct ownership.

Pre-trade checklist

• Is the quoted instrument spot, a perpetual swap or a dated future?
• What is the contract size, tick value and notional exposure?
• When does it expire and how does it settle?
• What margin can be called and when can liquidation occur?
• What is the current basis relative to the correct spot reference?
• Will the position need to be rolled?
• Are spread, commission, funding, storage or custody costs included?
• Does position size reflect the full notional risk?

The Money Man lesson

Read the product specification before reading the chart. Spot and futures may share a price theme, but expiry, basis, margin and settlement can dominate the actual result. Calculate risk from notional exposure and contract value, not from the cash margin alone.

Educational information only. The example is hypothetical. Futures and leveraged products can generate losses larger than the initial margin, and product rules vary by venue and jurisdiction.