Futures contract TLT-12.26 (TLZ6)

A futures contract is an agreement to transact in the future at a price agreed today. Buying a future does not acquire the underlying asset: the investor takes on an obligation under a contract that expires on a known date. Until then the contract trades freely and its price moves with the price of the underlying.

Settlement happens daily. The exchange debits and credits variation margin — the difference between the current contract price and the price at the previous clearing — so the result on a position is realised every day rather than only on closing. Opening a position requires only initial margin, usually a small fraction of the contract's value, and that is where the built-in leverage comes from: a small move in the underlying produces a marked result on the amount committed, in either direction.

On the Moscow Exchange derivatives market most contracts are cash-settled: nothing is delivered at expiry and the parties simply settle in money at the price of the underlying. Certain currency and commodity contracts remain deliverable.

Contracts on the same underlying form a series distinguished by delivery month. The nearest series is almost always the most liquid, and as expiry approaches trading moves into the next one — a shift known as rolling. The price of a distant series usually differs from the price of the underlying by the cost of money and, for commodities, the cost of storage.