When buying futures, you pay only a fraction of the true cost of the underlying item. For instance, say you buy a contract for 5,000 bushels of soybeans for delivery in July, and the market price for the contract is $30,000, or $6 a bushel. You might make only a $1,000 deposit as a good-faith gesture, rather than pay $30,000 up front.
This kind of leverage makes the futures market a place where fortunes are won and lost. Say soybean prices for July rise just 10 cents the next day. Across 5,000 bushels, that's a $500 gain. If, instead, prices fall 20 cents the next day, you're out $1,000. Your broker will come to you and demand an additional good-faith deposit - a margin call, in trader parlance - of another $1,000.
Because futures trading requires a vigilant eye, many traders use stop orders as protection. A stop order is a standing instruction given to a broker to close out a contract if the price of a futures contract hits a specified level.
