Futures Fundamentals: Contracts, Clearing, Margin and Delivery
This survey covers the first blocks of NFA's Series 3 study outline: what a futures contract obliges each side to do, how positions are offset and cleared, how margin and daily settlement work, and how delivery happens. It is a map of the ground, not the full lesson.
Two obligations, one negotiated term
A futures contract fixes a price today for delivery later, and both sides are bound: the long must take delivery and the short must make it, unless either offsets first. The exchange standardizes quantity, grade, delivery months and locations, so price is the only term traders negotiate. Standardization makes contracts interchangeable, which is what lets a trader close a position with anyone rather than with the original counterparty.
Offset and the clearinghouse
Offset means an equal and opposite trade in the same contract and the same delivery month. Selling a different month does not close a position; it creates a spread. The clearing organization clears and settles every trade and stands behind performance, which removes the counterparty risk a forward contract carries. Firms that are not clearing members settle their customers' trades through a clearing member.
Margin is a performance bond
Futures margin is not a down payment and not a loan. The exchange sets minimum initial and maintenance levels, and a firm may require more. Positions are marked to the settlement price every day. When equity falls to or below maintenance, the margin call restores the account to the initial level, not merely to maintenance. Because margin is small relative to contract value, gains and losses on the deposit are magnified.
Where to go deeper
The PrepPass Series 3 Study Guide works through margin calls, excess equity, price limits, delivery notices, exchanges for physicals and option exercise step by step, with worked examples and quizzes on each topic and a full-length 120-question practice exam.
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