Futures: A Complete Guide – History, How They Work, Differences from CFD, and Why Most Traders Lose Money

Futures are one of the most popular and powerful instruments in financial markets. They are used for trading, risk hedging, and speculation. However, despite their widespread use, many retail investors and traders do not fully understand how futures contracts work, why exchanges benefit from them, and how they differ from perpetual futures and CFDs.

In this article, we will cover:
✔ The history of futures and why they were created.
✔ How futures work and the different types.
✔ The difference between futures, perpetual futures, and CFDs.
✔ Why exchanges profit while most traders lose money.
✔ Where futures are most popular (crypto, oil, stock indices, gold).

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The History of Futures

Futures contracts were not invented yesterday—they have deep historical roots dating back to ancient times.

Ancient and Medieval Periods

• Babylon and Greece: Merchants entered agreements for future delivery of grain and other goods, fixing prices in advance.
• Netherlands, 1630s: During the Tulip Mania, contracts for the future delivery of tulip bulbs were widely used—one of the earliest recorded examples of futures trading.

Modern Evolution

• Chicago, 1848 – The Chicago Board of Trade (CBOT) was founded, standardizing contracts for grain, effectively creating the first official futures market.
• 1970s – The emergence of financial futures on currencies, interest rates, and stock indices.
• 1990s – The rise of electronic futures trading with the advancement of digital technologies.

Today, futures are traded worldwide on major exchanges like CME (Chicago Mercantile Exchange), NYSE, Moscow Exchange (MOEX), and Binance Futures (for crypto trading).

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How Do Futures Work?

A futures contract is a derivative contract between two parties that obligates them to buy or sell a specific asset at a predetermined price at a future date.

🔹 Fixed price – The asset's price is locked at the time of the contract.
🔹 Expiration date – Traditional futures have a set expiration date, after which the contract is settled.
🔹 Exchange-traded – Futures are traded on regulated exchanges with standardized contract terms.
🔹 Margin trading – Instead of paying the full contract value, traders use a margin deposit.

Example:

• A trader buys a crude oil futures contract at $80 per barrel with an expiration date in one month.
• If oil rises to $85 per barrel, the trader earns $5 per barrel.
• If oil drops to $75 per barrel, the trader loses $5 per barrel.

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Perpetual Futures vs. CFDs: What’s the Difference?

What Are Perpetual Futures?

Perpetual futures (Perpetual Contracts, Perp Futures) are futures contracts without an expiration date. Traders can hold positions indefinitely but must pay a funding fee periodically.

📌 Key Differences from Traditional Futures:

• No expiration date—positions can be held indefinitely.
• Funding fees are paid (or received) every 8 hours, depending on price differences between the spot and futures markets.
• Mostly used in crypto trading (Binance, Bybit, OKX).

What Are CFDs (Contracts for Difference)?

CFDs are over-the-counter (OTC) contracts where traders do not buy the asset itself but enter a contract with a broker to pay (or receive) the difference in price.

Feature	Futures	Perpetual Futures	CFD
Exchange-traded?	Yes	Yes	No, OTC
Expiration date?	Yes	No	No
Funding fees?	No	Yes	No
Margin requirements?	Yes	Yes	Determined by the broker
Liquidity?	High	High	May vary

✅ Conclusion: Perpetual futures are exchange-traded instruments, while CFDs are broker-controlled speculative contracts.

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Why Are Futures Profitable for Exchanges?

Exchanges generate revenue from traders, regardless of their success. Their primary income sources include:

✔ Trading fees – Every transaction incurs a commission, whether the trader profits or loses.
✔ Margin requirements – Traders must maintain a deposit, which exchanges can use for liquidity.
✔ Funding fees – Perpetual futures generate ongoing payments from traders.

💰 Why Do Most Traders Lose Money?
📉 Statistics show that 70-80% of retail traders lose money in the futures market.

Main reasons:

• Excessive leverage leads to liquidation of positions.
• Emotional trading and lack of knowledge.
• High market volatility causes unexpected losses.

📌 Fact: The more traders lose, the more exchanges earn from commissions and fees.

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Where Are Futures Most Popular?

1. Cryptocurrency Futures

📍 Exchanges: Binance, Bybit, OKX
📍 Popular Contracts:

• BTC/USDT Perpetual
• ETH/USDT Perpetual
• Altcoins (SOL, XRP, ADA)

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2. Stock Index Futures

📍 Exchanges: CME, NYSE, Moscow Exchange
📍 Popular Contracts:

• S&P 500 Futures (ES)
• Nasdaq 100 Futures (NQ)
• Dow Jones Futures (YM)

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3. Oil and Gas Futures

📍 Exchanges: NYMEX, ICE, CME
📍 Popular Contracts:

• WTI Crude Oil Futures (CL)
• Brent Crude Oil Futures (BZ)

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4. Gold and Silver Futures

📍 Exchanges: COMEX, LME
📍 Popular Contracts:

• Gold Futures (GC)
• Silver Futures (SI)

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Conclusion

Futures are highly volatile instruments that can generate significant profits but also lead to substantial losses.

📌 Key Takeaways:
✔ Futures have a long history and remain essential in global finance.
✔ Exchanges profit regardless of trading outcomes.
✔ 80% of traders lose money in futures markets due to mismanagement and high risks.

 

Futures trading requires discipline, strategy, and an understanding of market mechanics—otherwise, traders risk becoming part of the majority who lose money.