Futures Contract: Locking In a Price Today for an Asset Delivered Tomorrow
How Standardised, Exchange-Traded Futures Differ From CFDs in Singapore
A futures contract is a standardised, legally binding agreement traded on a regulated exchange to buy or sell a specific quantity of an underlying asset — such as a stock index, commodity, or currency — at a predetermined price on a specified future date, used by both hedgers managing risk and speculators seeking leveraged exposure to price movements.
Not financial advice. All figures for educational reference only. Data as at October 2026.
Last updated: October 2026
Key Takeaways
- Futures contracts are standardised and traded on regulated exchanges like SGX, unlike CFDs which are over-the-counter contracts directly with a broker.
- SGX offers futures on popular benchmarks including the SGX Nikkei 225 Index Futures, FTSE China A50 Index Futures, and various interest rate and commodity futures, widely used by both institutional and retail traders in Asia.
- Futures require posting margin (a fraction of the contract’s full value) and are marked-to-market daily, meaning gains and losses are settled in cash every trading day rather than only at contract expiry.
- Because futures are centrally cleared through an exchange clearinghouse, counterparty risk is generally lower than with over-the-counter derivatives like CFDs.
- Futures contracts have fixed expiry dates, after which they are either settled in cash or require physical delivery of the underlying asset, depending on the contract specification.
What Is a Futures Contract?
A futures contract obligates two parties — a buyer and a seller — to transact a specific asset at a specific price on a specific future date, regardless of what the market price turns out to be at that time. Unlike an option, which gives the holder the right but not the obligation to transact, a futures contract is a firm commitment for both sides (barring an offsetting trade before expiry).
Futures originated in agricultural commodity markets, allowing farmers to lock in a selling price for their crops months before harvest, protecting against the risk of a price crash, while buyers (like food processors) could lock in a purchase price, protecting against the risk of a price spike. This hedging function remains central to futures markets today, extending far beyond agriculture into financial futures covering stock indices, interest rates, currencies, energy, and metals.
Modern futures contracts are traded on regulated exchanges with standardised contract sizes, expiry dates, and settlement procedures, and are centrally cleared through a clearinghouse that acts as the counterparty to every trade — significantly reducing the risk that one party’s default affects the other, compared to a bilateral over-the-counter contract.
How Do Futures Contracts Work in Singapore?
The Singapore Exchange (SGX) is one of Asia’s most significant derivatives exchanges, offering a wide range of futures contracts that attract both regional institutional traders and Singapore retail traders with the appropriate account access. Notable SGX futures contracts include the SGX Nikkei 225 Index Futures (one of the most actively traded Japan equity index futures globally, often traded even outside Japan’s own market hours), the FTSE China A50 Index Futures (a popular proxy for mainland Chinese equity exposure), and various interest rate futures tied to SORA (Singapore Overnight Rate Average).
To trade futures, an investor needs a futures trading account with a licensed broker, separate in many cases from a standard cash equities brokerage account, along with sufficient margin to meet the exchange’s initial margin requirement for each contract. Futures positions are marked-to-market daily — meaning gains or losses are calculated and settled in cash at the end of each trading day based on the contract’s settlement price, rather than only when the position is eventually closed or expires. If a trader’s account equity falls below the maintenance margin level due to adverse price moves, they receive a margin call requiring additional funds to keep the position open.
| SGX Futures Contract | Underlying | Common Use |
|---|---|---|
| SGX Nikkei 225 Index Futures | Japan’s Nikkei 225 Index | Hedging/speculating on Japan equities |
| FTSE China A50 Index Futures | Top 50 mainland China A-shares | China equity exposure/hedging |
| SGX SORA Futures | Singapore Overnight Rate Average | Hedging interest rate exposure |
Source: SGX product listings, 2026.
Futures Contract Example
Suppose a trader believes the Nikkei 225 Index, currently at 40,000 points, will rise over the next month. They buy one Nikkei 225 Index Futures contract, where each point of index movement is worth a fixed dollar amount set by the exchange (for illustration, say $5 per point). If the index rises to 41,000 points (a 1,000-point move), the trader’s gain is 1,000 points × $5 = $5,000, credited to their account through daily mark-to-market settlement over the period the position was held.
Conversely, if the index falls to 39,000 points instead, the trader faces a $5,000 loss, debited from their margin account. Because futures require only a fraction of the full contract value as margin (often single-digit to low-double-digit percentages), this $5,000 gain or loss can represent a very large percentage swing relative to the margin actually posted — illustrating, similarly to CFDs, how leverage magnifies both outcomes in futures trading.
Advantages of Futures Contracts
Lower counterparty risk than OTC derivatives. Central clearing through an exchange clearinghouse means futures traders face the clearinghouse as counterparty rather than an individual broker, reducing default risk relative to bilateral contracts like CFDs.
High liquidity on major contracts. Benchmark futures like SGX’s Nikkei 225 and FTSE China A50 contracts attract deep institutional and retail participation, generally offering tight bid-ask spreads and reliable execution.
Effective hedging tool. Futures allow investors and businesses to lock in prices and manage risk exposure to currency moves, interest rate changes, or commodity price swings with precision.
Transparent, standardised pricing. Because futures trade on a regulated exchange with public price discovery, pricing is transparent and not dependent on a single broker’s quoted price, unlike some OTC products.
Risks and Limitations
Leverage amplifies losses. As with CFDs, the margin-based nature of futures trading means losses can escalate quickly relative to the capital deposited, and traders can lose significantly more than their initial margin in adverse scenarios.
Daily mark-to-market cash flow demands. Unlike buy-and-hold investing, futures require traders to be ready to meet margin calls promptly, which demands active monitoring and available liquid capital.
Expiry and rollover complexity. Futures contracts expire on fixed dates, requiring traders who want continued exposure to ‘roll’ their position into a new contract, which involves additional transaction costs and timing considerations.
Not suited to passive, long-term investors. The active management, leverage, and expiry mechanics of futures make them primarily a tool for active traders, hedgers, and institutions rather than long-term buy-and-hold retail investors.
Futures Contracts vs CFDs
| Factor | Futures Contracts | CFDs |
|---|---|---|
| Trading venue | Regulated exchange (e.g. SGX) | Over-the-counter, directly with broker |
| Standardisation | Fully standardised contract size and terms | Broker-specific, can vary |
| Counterparty | Exchange clearinghouse | The broker itself |
| Expiry | Fixed expiry date, requires rollover for continued exposure | Often no fixed expiry (perpetual-style positions) |
| Typical user base | Institutions, sophisticated active traders, hedgers | Retail speculative traders |
Source: SGX, MAS product classifications, 2026.
The Bottom Line
Futures contracts give traders and businesses a standardised, exchange-cleared way to hedge or speculate on future price moves across indices, rates, and commodities, with lower counterparty risk than OTC alternatives like CFDs. The leverage and active-management demands that come with daily mark-to-market settlement, however, make futures a tool best suited to experienced traders and institutions rather than passive long-term investors.
Frequently Asked Questions
What is the difference between futures and options?
A futures contract obligates both parties to transact at the agreed price on the expiry date, while an options contract gives the holder the right, but not the obligation, to transact — meaning an options buyer’s maximum loss is typically limited to the premium paid, unlike futures where losses can be larger.
Can retail investors trade futures in Singapore?
Yes, retail investors can trade SGX-listed futures contracts through a licensed futures broker, though they typically need to meet margin requirements and demonstrate sufficient understanding of the leverage and risks involved.
What happens when a futures contract expires?
Depending on the contract specification, it is either cash-settled (the final profit or loss is calculated against a reference settlement price) or physically settled (requiring actual delivery of the underlying asset), though most retail-accessible index and financial futures are cash-settled.
Are futures riskier than stocks?
Generally yes, due to the leverage involved — a relatively small price move in the underlying asset can translate into a much larger percentage gain or loss relative to the margin posted, compared to owning the underlying stock outright.
What is the SGX Nikkei 225 Index Futures contract used for?
It is widely used by both institutional and retail traders to gain or hedge exposure to Japan’s equity market, and is notable for being one of the most actively traded Nikkei 225 futures contracts globally, including significant trading volume outside Japan’s own exchange hours.