What You Can Trade: Stocks, ETFs, Futures and Options

Before you read: How Markets Work: Bids, Asks, Spread and Liquidity

What you will learn

• What you actually own, or owe, with a stock, an ETF, a futures contract and an option.
• How futures are specified: contract size, tick size, tick value, margin, expiration and roll.
• Why leverage magnifies both gains and losses, and why futures losses can exceed the money deposited.

Why does the product matter?

If two charts look identical, does it matter what is behind them?

Charts of different products can look alike, but the obligations behind them differ a great deal. A share is a slice of ownership. A futures contract is a promise between two parties. An option is a right that one side bought and the other side sold. Those differences decide how much money is at stake per price move, what happens on a given date, and how large a loss can become.

What are stocks?

What exactly do you hold when you buy one share?

A stock (or share) is a unit of ownership in a company. If you buy shares outright, the most you can lose is what you paid, because the price cannot fall below zero. Share prices move with the company’s results, with interest rates, with the wider market and with sentiment.

Stocks trade on exchanges during set hours, with additional pre-market and after-hours sessions at many brokers. Some brokers also offer margin accounts, which let you borrow to hold more than you deposited. Borrowing changes the risk: losses can then exceed your own money in the position. Rules on margin accounts and on frequent day trading of stocks exist, differ by country and broker, and change from time to time, so they are worth checking with the broker directly. US day-trading margin rules changed in 2026; see Account Types and the Pattern Day Trader Rule.

What are ETFs?

Can one trade give you a slice of many companies at once?

An ETF (exchange-traded fund) is a fund whose shares trade on an exchange like a stock. Many ETFs track an index, a sector, bonds or a commodity. Buying one share gives you a small piece of everything the fund holds, less its running costs.

Some ETFs are more complex. Leveraged and inverse ETFs aim to deliver a multiple, or the opposite, of a benchmark’s move over a short period, often one day. Over longer periods their results can differ sharply from the simple multiple you might expect. Their documents explain how they work, and they are not equivalent to holding the benchmark.

What are futures?

What does it mean to agree today on a price for something delivered later?

A futures contract is a standardized agreement, traded on an exchange, to buy or sell a set amount of something at a future date. The “something” may be a stock index, a currency, an interest rate, oil, grain or metal. Many traders close or roll their contracts before expiration rather than make or take delivery, and many contracts settle in cash.

Each contract has a specification published by its exchange. The key parts are:

• Contract size and multiplier: contract size is how much of the underlying one contract covers; the multiplier turns a price move into money for one contract. For an index contract, the multiplier is a dollar amount per index point. The two are related but not the same thing.
• Tick size: the smallest price step the contract can move.
• Tick value: what one tick is worth in money for one contract: tick size times the multiplier.
• Expiration: the date the contract stops trading and settles. Many financial futures list contracts on a quarterly cycle.
• Roll: moving from an expiring contract month to a later one. Activity shifts to the next month in the days before expiration, which matters when you read volume (trading volume).

A fictional example, as illustrative arithmetic only, not a recommendation: imagine a contract where one index point is worth $20 and the tick size is 0.25 points. One tick is then 0.25 × $20 = $5 per contract. A 10-point move is 40 ticks, or $200 per contract, in either direction. Because one contract controls a much larger value than the deposit needed to hold it, moves like this are large relative to that deposit. Leverage can cause losses larger than the amount invested.

Tick value diagram

Illustrative diagram constructed for teaching. Not real market data.

The diagram shows a tick ladder for the fictional contract above, showing how ticks add up to points and how each step converts to dollars per contract. It is constructed for teaching and is not real market data.

What is futures margin?

If you only put down a small deposit, how much are you actually exposed to?

To hold a futures position, the broker requires margin: a good-faith deposit that shows you can cover daily losses. It is not a down payment and not a loan. The exchange sets minimum levels, and brokers may require more.

• Initial margin is the amount needed to open a position.
• Maintenance margin is the lower level that must be kept while it is open.

Futures accounts are marked to market every day: gains are added and losses are taken out. If the balance falls below maintenance, the broker may ask for more money (a margin call) or close the position. Because the deposit is small compared with the value the contract controls, a modest price move can wipe out the deposit and more.

What is leverage?

Does leverage change how far the market moves, or how much that move means to you?

Leverage means controlling a position worth more than the money you put up. It does not change the market’s movement; it changes what each move does to your account. A move that would be 1% on the full contract value can be many times that as a share of the margin deposited. Leverage magnifies losses and gains alike, and in futures losses can exceed the deposit. These lessons do not suggest any leverage level; the point is to understand the arithmetic, which risk management arithmetic covers in more depth.

What are options?

What is the difference between having a right and having an obligation?

An option gives its buyer the right, but not the obligation, to buy (a call) or sell (a put) something at a set price (the strike) until or at a set date (expiration). The buyer pays a premium to the seller.

For an option held only as an option, the buyer’s loss is limited to the premium paid plus applicable costs. This statement does not cap losses or funding needs after exercise creates shares or a futures position. For example, one fictional unadjusted 100-share call bought at $2 per share costs $200 before fees; exercising a $50 strike would require $5,000 to acquire 100 shares under these share-delivery terms. That stock position then has its own price risk. A cash-settled product instead follows its stated cash-settlement terms.

A writer accepts the option’s contractual obligation. An uncovered stock call can have unbounded loss if the stock rises; a stock put writer can have a substantial loss if the stock falls. “Seller” alone is not a complete risk description because holdings, other legs, product terms and costs matter. Learn the operational boundary in Exercise, Assignment and Settlement and the product differences in Index, ETF and Futures Options.

Options exist on stocks, ETFs, indexes and futures. Their prices depend on the underlying price, time left, and expected volatility, which makes them a topic of their own. These lessons mention them only at this level.

What this does not tell you about tradable instruments

• Contract specifications change; the exchange’s own page is the reference, not this lesson.
• Margin levels set today can be raised at short notice, especially in volatile markets.
• Knowing how a product works does not make it suitable for any particular person.
• None of these products is described here as better or safer than another.

Watch the lesson explained

Check yourself

Reflect on these; there is no score.

1. In the fictional contract above, what would a 3-point move be worth for one contract? Hint: points × dollars per point.
2. Why is futures margin described as a deposit rather than a price? Hint: what it is for, and what happens when losses are larger.
3. What happens to the volume of an expiring futures month as the roll approaches? Hint: activity moves to the next month.
4. A fictional 100-share call costs $2 per share and has a $50 strike. What is its option-only purchase cost before fees, and what cash amount would share-delivery exercise require? Does the first amount cap later stock-position losses? Hint: Premium×100 is different from strike×100.

Last reviewed November 8, 2026. Spotted a mistake? Report an error.