What are stock futures and how do they work?

What are stock futures?

Stock futures are standardized derivative contracts that commit a buyer and a seller to exchange stocks at a set price on a set future date. Holding a stock futures contract gives you financial exposure to price movements, but it doesn’t mean you’ll own any physical shares, receive dividends or have shareholder voting rights. 

Stock index futures vs. single stock futures

There are two broad categories of stock futures: Broad Based stock index futures which generally are made up of an index of 10 or more stocks, and narrow based (nine or fewer stocks in the index) and single stock futures.

Both of these markets operate within a regulated framework established by the Commodity Futures Trading Commission (CFTC), but narrow based and single stock futures require additional registrations and are under the regulated framework of both the CFTC and the Securities and Exchange Commission (SEC).

How do stock futures work in practice?

Stock futures work as follows – you’d open a futures position using an initial margin, which is a deposit amount (percentage of the contract’s value) set by the exchange or clearinghouse. Once the position is open, your margin account balance is adjusted at the close of each trading day to reflect the day's asset price movement. 

You’ll be credited if it rose and debited if it dropped. To keep your position open until the futures contract expires, you need a minimum account balance, known as the maintenance margin. 

This structure is why leverage matters so much. Because futures require only a margin deposit rather than payment of full contract value, you can control a larger position with less upfront capital. Leverage magnifies both gains and losses relative to the amount deposited, so you could lose your entire deposit if the market moves against you. 

For example, CFTC and SEC regulations require initial and maintenance margin on outright long or short positions to be at least 15% of the current notional value. 

Read more about futures trading and margin

Here’s a simplified, hypothetical mark-to-market example of a long stock index futures contract. The numbers are illustrative only and don’t reflect any real price or product. If a running balance drifts toward the maintenance level, the account may need topping up.

Cash settlement vs. physical delivery

Every futures contract has to conclude at a specific date, called the expiration date, and there are two ways that can happen: Cash settlement and physical delivery. All Crypto.com derivatives contracts are cash settled, which offers a few benefits over physical delivery: 

• Faster settlement: Cash-settled futures are settled through a cash payment based on the contract’s final settlement price. Unlike physical delivery, the process doesn’t require the underlying asset to be transferred between the buyer and seller. This can make settlement faster and more straightforward, although the exact timing depends on the contract and exchange.
• No need to transact in the underlying: Traders can gain financial exposure to changes in the underlying asset’s price without having to buy, sell or take ownership of it. This avoids the transactions and arrangements that physical delivery may require, such as purchasing shares, transferring ownership or arranging custody.
• Consistent settlement for offsetting positions: Offsetting positions in the same cash-settled contract use the same final settlement price and settlement date. The resulting gains and losses can therefore be calculated and settled in cash without creating separate delivery obligations or mismatched transfers of the underlying asset.
• Reduced operational requirements: Because no underlying asset changes hands, cash settlement removes the need to coordinate delivery, verify ownership or manage the transfer and custody of the asset.
• Lower delivery risk: Cash settlement eliminates the risk that one party may be unable to deliver the required quantity of the underlying asset when the contract expires. The parties instead meet their obligations through a cash payment.
• Access to assets that are difficult to deliver: Some underlying exposures, such as stock indices, cannot be physically delivered as a single asset. Cash settlement allows futures contracts to track these markets without requiring the purchase and transfer of every individual index constituent.
  

Why do traders use stock futures?

Traders use stock futures for reasons such as hedging and price speculation. 

• Hedging: If you already have stock exposure, you can use futures to offset the risk of an adverse price move. Here, the aim is protection against potential downside, not a directional bet.
• Speculation: Because you can take a larger position with less upfront capital, you’d accept price risk in the hope of benefiting from an anticipated upward or downward move.

Access is another reason traders might choose futures over other trading methods. CME US equity index futures trade nearly 24 hours a day, five days a week. This long window enables you to respond to economic news and events outside standard stock-market hours.

Stock futures vs. spot stocks vs. stock options

Key risks and considerations of stock futures trading

• Leverage: Remember, a stock price move might look modest, but it can be significant against your margin balance.
• Margin call: If your account equity falls below the maintenance margin threshold, you may be placed on “margin call”. You’ll then have to add funds to keep the position open. If you don’t, the position will automatically be closed.
• Liquidity: Thinly traded contracts can be harder to enter or exit at the price you want. Plus, liquidity can worsen during volatile sessions.

A few practical habits can help manage these risks:

• Understand the specific contract's margin requirements before trading.
• Consider using stop-loss levels to define your downside in advance.
• Keep excess cash equity above the maintenance requirement as a buffer.
• Size positions with the magnified downside (not just the upside) in mind.

Markets move both ways. Trade them that way on Crypto.com.

Sometimes the opportunity is up. Sometimes it’s down. And sometimes it’s when TradFi markets are closed.

With Crypto.com Perpetuals, you can go long or short on supported crypto and stocks, with up to 5x leverage, no expiry date and built-in tools to manage risks.

See what you can trade with Crypto.com Perpetuals

How to get exposure to stocks via futures, spot markets and options

1. Download the Crypto.com App or the Crypto.com Exchange App and create an account.
2. Track real-time prices, charts and market updates across thousands of assets.
3. Set price alerts to stay informed on major market trends.
4. Explore more educational guides on our Learn Hub.

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FAQs about stock futures

What is a stock futures contract in simple terms?

It’s a standardized derivative contract, set by a regulated exchange, that commits a buyer and a seller to exchange value based on an underlying stock or index at a set price on a future date. Contracts are typically settled in cash, but physical delivery of assets is also possible.

Do stock futures pay dividends to contract holders?

Holding a futures contract provides price exposure but doesn’t, by itself, mean equity ownership. As a result, a contract holder doesn’t receive shareholder dividends in the way a direct shareholder would.

What is the main difference between stock futures and stock options?

A futures contract creates a binding obligation for both the buyer and the seller to complete the trade at expiration. An option is generally structured to give its buyer the right – not the obligation – to trade.

Can you trade stock futures outside regular stock market hours?

Yes, on the relevant exchange. Our stock futures trade 24/5.

Important information: This article is provided by Crypto.com for informational and educational purposes only. Nothing contained in this article constitutes, or is intended to constitute, financial advice, investment advice, trading advice, legal advice, tax advice, or any other form of professional advice or recommendation. The information presented herein should not be relied upon as a basis for making any financial, investment, or trading decisions.

Trading perpetual contracts, futures, options, and other derivatives—including the use of margin and leverage—involves a high level of risk and may not be suitable for all users. You may lose all or more than your initial margin, and losses can occur rapidly due to volatility, leverage, or adverse market conditions. The use of leverage amplifies both potential gains and potential losses, and you should not trade with capital you cannot afford to lose. Liquidation may occur if maintenance margin requirements are not met, and funding rates, settlement mechanisms, expiry conditions, or pricing mechanisms may vary between instruments and trading sessions. Past performance is not indicative of future results, and no representation or warranty is made regarding future performance.

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