How it works
Futures contracts on stock indices or commodities (such as crude oil or gold) let two parties agree in advance on a future settlement date and price. Rather than paying the full contract value, traders post a certain margin deposit, which is what allows a relatively small amount of capital to control a much larger contract value — a feature known as "leverage."
What to keep in mind
Because of the leverage involved, gains and losses from price movements tend to be larger than with a physical trade, and if the market moves against your position, it is possible to incur a loss exceeding your original investment. If margin falls short, you may be required to post additional margin, so careful risk management is essential.