Deep Dive · Futures · Lesson 2
Long and
Short Futures
Big Idea
Every futures contract has two sides. The long agrees to buy the asset; the short agrees to sell it. They take opposite bets on the same price.
- Long profits when the price rises.
- Short profits when the price falls.
You do not need to own something to sell a future on it — shorting is built in.
Two Sides of Every Trade
For every buyer there is a seller. Whatever one side gains, the other side loses — futures are a zero-sum trade between the two parties.
| Position | You Agree To | Market View | Profits When |
|---|---|---|---|
| Long | Buy at the agreed price | Bullish | Price rises |
| Short | Sell at the agreed price | Bearish | Price falls |
Position 1
Going Long
You buy one crude oil futures contract at $75. Each contract is 1,000 barrels, so every $1 move in oil is worth $1,000 to your position. You want the price to rise above $75.
| Oil at Expiry | Move vs $75 | P&L (Long) |
|---|---|---|
| $65 | −$10 | −$10,000 |
| $70 | −$5 | −$5,000 |
| $75 | $0 | Break even |
| $80 | +$5 | +$5,000 |
| $85 | +$10 | +$10,000 |
A consumer of oil — say an airline — might go long to lock in a price before it rises.
Position 2
Going Short
Now you sell one crude oil contract at $75 instead. You are obligated to deliver at $75, so you want the price to fall below it. The numbers are a mirror image of the long position.
| Oil at Expiry | Move vs $75 | P&L (Short) |
|---|---|---|
| $65 | −$10 | +$10,000 |
| $70 | −$5 | +$5,000 |
| $75 | $0 | Break even |
| $80 | +$5 | −$5,000 |
| $85 | +$10 | −$10,000 |
A producer of oil — say a drilling company — might go short to lock in a selling price before it falls.
A Straight Line, Not a Bend
Compare the two tables and you will see they are mirror images: at $85 the long makes $10,000 and the short loses $10,000. That is the zero-sum nature of futures.
It also shows the key difference from options. An option’s payoff bends at the strike — limited loss for a buyer, a flat premium for a seller. A future’s payoff is a straight line: every $1 move is worth the same fixed amount per contract, in both directions.
- Long: loss is limited only by the price falling to zero; the gain has no ceiling.
- Short: gain is limited by the price falling to zero; the loss has no ceiling as the price rises.
Who Goes Long, Who Goes Short
| Who | Position | Why |
|---|---|---|
| Airline (uses fuel) | Long | Lock in a buying price before fuel rises |
| Oil producer | Short | Lock in a selling price before oil falls |
| Farmer | Short | Guarantee a price for a crop not yet harvested |
| Speculator | Either | Bet on the direction of the price |
Interactive Checks
Check 1 of 3
You go long one oil future at $75, and at expiry oil is trading at $82.
What is your result?
Check 2 of 3
A wheat farmer wants to guarantee a selling price for a crop that is still growing.
Which position fits?
Check 3 of 3
You compare a futures payoff with a bought option’s payoff.
How is the futures payoff different?
Common Beginner Mistakes
- ❌ Thinking shorting is exotic. Going short a future is as ordinary as going long — you are simply the seller.
- ❌ Expecting capped losses. A future is not a bought option. Losses grow dollar-for-dollar with the price and can be large on either side.
- ❌ Forgetting it is zero-sum. Your profit is the counterparty’s loss, and vice versa.
- ❌ Assuming long is always safer. Long and short carry symmetric risk; neither is inherently safe.
Quick Memory Tool
- Long = agree to buy = win when the price goes up
- Short = agree to sell = win when the price goes down
- The payoff is a straight line: every $1 move = a fixed amount per contract
- One side’s gain is always the other side’s loss
Next Lesson
Contract Specifications — contract size, tick value, and delivery months. The standardised "spec sheet" that turns a futures contract into something anyone can trade.