What is a futures contract? When you buy stocks you buy a share in a company that is made up of both tangible and intangible assets. Futures on the other hand, typically only deal with tangible assets such as crude oil, foreign currencies, gold, corn, cattle and even interest rates. By definition, a futures contract is a legally binding agreement to buy or sell something in the future at a specified price.

What is margin? Margin is a good faith deposit which you place in your account. It is simply a performance bond that signifies your willingness to honor the positions in your account. You must maintain a specified level of margin in your account. If your account balance falls below this level, you must deposit additional funds into the account to restore your balance to required minimums. The demand for additional funds is referred to as a margin call.

How can you sell what you don't own? In futures trading you have the ability to sell first and then buy back later. This is because the contract is an obligation to deliver a product at a future date in time. As long as you relieve yourself of this obligation prior to the specified delivery date, you don't have to own something to sell it.