Part of the Futures Trading 101 series.
You can spot a confused trader in one sentence. They use terms they’ve heard but never actually understand — “I got stopped out because of slippage on my tick value” said with zero conviction. That’s not a knock. Every trader starts here. But confused traders don’t execute, and you can’t execute what you can’t define.
This isn’t a textbook glossary. It’s the list of terms you’ll actually run into in your first few weeks of futures trading, explained the way one trader would explain them to another — no jargon wrapped in jargon.
Contract mechanics
Futures contract — A standardized agreement to buy or sell an asset at a set price on a future date. You’re rarely holding it to “delivery.” You’re trading the price movement.
Underlying asset — Whatever the contract is based on: the S&P 500 index, crude oil, gold, Treasury bonds, etc.
Expiration date — The date a contract stops trading. Most retail futures traders roll to the next contract before this or trade contracts far enough out that it doesn’t matter day-to-day.
E-mini / Micro E-mini — Smaller versions of full-size index futures contracts (ES → MES, NQ → MNQ) built so retail accounts can trade with less capital and risk per contract.
Long — You bought, expecting price to go up.
Short — You sold first, expecting price to go down. Yes, you can profit from a market falling — that’s normal in futures, not a special move.
Open interest — The total number of outstanding contracts not yet closed. Higher generally means more liquidity and more traders with skin in the game.
Volume — How many contracts traded in a given period. Higher volume usually means tighter spreads and easier fills.
Pricing and P&L
Tick — The smallest price increment a contract can move. Every contract has a fixed tick size.
Tick value — The dollar amount one tick is worth for one contract. This is set by the exchange, not you, and it’s different for every product.
Point value — The dollar value of a full one-point move, made up of however many ticks are in that point.
Slippage — The difference between the price you expected and the price you actually got filled at, usually during fast moves or thin liquidity.
Spread — The gap between the current bid (what buyers will pay) and ask (what sellers want). Wider spreads mean it costs more to get in and out.
Margin, leverage, and account mechanics
Margin — The amount of capital required to open or hold a futures position. In futures, margin is a performance bond, not a loan like margin in stock trading.
Initial margin — What you need to open a position.
Maintenance margin — The minimum equity you must keep in the account to hold the position without a margin call.
Day trading margin — A reduced margin requirement for positions opened and closed within the same session, offered by many brokers and prop firms.
Leverage — Controlling a large notional contract value with a relatively small amount of capital. It multiplies both gains and losses — it does not create an edge on its own.
Notional value — The full dollar value of what the contract actually represents, separate from the margin needed to control it.
Buying power — The capital available in your account to open new positions.
Margin call — A broker’s demand for more funds because your account equity dropped below the maintenance requirement.
Risk and strategy terms
Stop-loss — A predetermined price where you exit a losing trade. Non-negotiable if you want to survive long enough to get good.
Position size — How many contracts you trade on a given setup, ideally sized to your stop distance and account risk tolerance — not to how confident you feel.
Drawdown — The decline in account value from a peak. Every trader has drawdowns. The question is whether yours are controlled or catastrophic.
Risk-reward ratio — How much you’re risking compared to how much you’re targeting on a trade. A framework, not a guarantee.
Backtest — Testing a strategy’s rules against historical data before risking real capital on it.
Edge — Your statistical advantage over a large number of trades, built from a repeatable process — not from any single trade’s outcome.
Prop firm and evaluation terms
Evaluation / challenge — A test phase many prop firms use to see if a trader can hit a profit target while respecting risk rules before getting funded.
Trailing drawdown — A max-loss limit that moves up as your account grows, effectively locking in less room to give back once you’re profitable.
Consistency rule — A rule some firms use to prevent one outsized day from carrying an entire evaluation, forcing steadier, more repeatable performance.
Funded account — An account, provided by a prop firm after you pass an evaluation, that lets you trade their capital under their risk rules in exchange for a share of profits.
Every one of these terms shows up in real decisions you’ll make this week if you’re trading futures. The fix for confusion isn’t memorizing a list — it’s using these words correctly every time you talk about your own trades. Next time you journal a trade, write it using the real terms. If you can’t explain what happened using the actual language, you don’t understand the trade yet.
Takeaway: You don’t need to memorize this page — you need to stop trading with terms you can’t actually define.
If any of these terms felt shaky, go back to What Is a Futures Contract? or the full Futures Trading 101 series and start from the beginning.
