National legislation in the form of Corporations and Securities Legislation Law, which is administered by the Australian Securities & Investments Commission (ASIC), governs the Australian Futures Industry. In addition to Futures Law, all trading at the Sydney Futures Exchange (SFE) is undertaken in accordance with the Business Rules of the Exchange. These business rules ensure that the futures market is fair and orderly and the interests of all participants are safeguarded.

Definition: A futures contract is a legally binding agreement to buy or sell a specified amount of a commodity or financial instrument at a fixed price some time in the future. The quantity of the material is specified and the delivery date is set in the contract. The price is the only variable and is fixed between the buyer and seller at the time the contract is opened. The vast majority of futures contracts do not result in the making or taking of delivery. Instead, open positions are exited by the buying or selling of futures positions in order to close (cover) the original position/s, i.e. if you buy to enter a futures contract, an open position exists until that position is sold (closed). If you sell to enter a futures contract, an open position exists until that position is bought back (closed). You can exit a futures position at any time, i.e. you don't have to wait for expiry.

Every time you effect a trade you will receive confirmation in the mail, which outlines full details of every trade. You will also receive confirmation on open positions and where a trade stands in relation to the market as at the print date. In addition to these records, you will receive monthly statements, which summarise all trading details that occurred during the month. We suggest you retain monthly statements for taxation purposes.

A major attraction of futures trading for investors is leverage. As the initial (returnable) deposit is only a fraction of the contracts cash value, investors can realise substantial profits in relation to the commitment of capital, at times making more than the initial deposit in profit. Obviously the reverse can occur if the price moves against you, this is why we insist on the use of stop loss orders. We advise that it's smarter to get out of a losing position with a small loss, than hope your position improves later. Remember that by getting out with a small loss, you can nearly always re-enter the market at a better price later. It must be noted that the execution of a stop-loss may not guarantee exiting a contact at the exact predetermined level due to the potential for slippage or gapping. Futures contracts are similar to buying or selling a parcel of shares, except you only need to provide a fraction of the capital to hold them whilst still trading price movements.

Another attraction of the futures markets is the ability to take advantage of falling prices just as quickly and efficiently as rising prices. The concept of selling first, and buying back later can appear strange at first. "How can I sell something I don't have?" is a common question. Remember that futures contracts are created by an agreement, as apart from an exchange of tangibles. When you sell to enter a trade, you do so on the agreement that you will buy to exit at some time in the future. If you buy lower than you've sold the result is a profit and if you buy back at a higher price the result is a loss. Selling futures contracts (to open the trade) is similar to short selling shares. You can sell certain shares first and buy them back later at a profit or a loss. You can do this without ever owning the shares therefore you are selling "price". When you buy back later at a lower price, you have realised a profit. The equation remains the same, you sold (to open) at a high price and bought (to close) at a low price, i.e. you still bought low and sold high, you just sold first.

An initial margin is required to hold a futures contract. Initial margins are established by the exchanges and vary according to contract value and market volatility.

While you remain in the trade, variation margins apply, and are settled daily at day's end.