It is now January 1. You expect the price of XYZ stock to increase over a given period of time – in this case 3 months – and wish to profit from this rise. There is a futures contract on XYZ stock expiring in March that fits your bullish (90-day) time frame, and which covers 100 shares of XYZ stock. At the moment, the market price of XYZ stock is $101.00 per share. This March XYZ future is currently trading for $102.00, so you purchase one contract at that price. If XYZ and the futures contract increase in price, you can sell your long contract at a profit. On the other hand, if XYZ and the futures contract decline in price you can sell your long contract, but at a loss.

A month after you purchase your March XYZ contract the price of XYZ stock has increased, and you sell your long futures contract for $130.00. Your profit* would be $18 per share ($130 sale price - $102 purchase price), or $1,800 net ($18 x 100 underlying shares) for the contract.

A month after you purchase your March XYZ contract the price of XYZ stock has decreased, and you sell your long futures contract for $90.00. Your loss* would be $12 per share ($102 purchase price - $90 sale price), or $1,200 net ($12 x 100 underlying shares) for the contract.

* Exclusive of commissions and other transaction costs, margin requirements, and taxes.

Note: Security futures products are not suitable for all investors. Futures trading involves substantial risk of financial loss and should be considered carefully before making any trades.