1. Futures Contract

A futures contract is a standardized agreement to buy or sell an asset (a commodity, gold, a currency, and so on) at a price agreed today, with settlement at a future date.

The key word is standardized. The size, the underlying asset, and the rules of the contract are set by the futures exchange, so every participant trades exactly the same product. Buyers and sellers do not have to negotiate from scratch for every transaction.

This is where a clearing house such as ICH comes in. Once a trade is made on the exchange, the clearing house guarantees its settlement, so neither side needs to worry about whether the counterparty will meet its obligations.

2. Lot

A lot is the unit of size in a contract. Think of it as a "package": you do not buy gold or currency one unit at a time, but in a fixed amount per lot, as set out in the contract specifications.

As a result:

• The more lots you take, the larger the value of your position.

• Gains and losses from each price movement grow with the number of lots.

• The margin you must deposit also grows with the number of lots.

What one lot contains differs from product to product. Always check the exchange's contract specifications before trading, and never assume that lot size is the same across products.

3. Mini and Micro

Some contracts, especially foreign exchange contracts, are offered in several sizes. Two common ones are mini and micro.

• Mini: a contract size smaller than the standard size.

• Micro: a size smaller still than mini.

The smaller the contract, the smaller the exposure, the margin required, and the amount gained or lost per price movement. That is why ICH's margin table on its Data page shows separate columns for Micro and Mini, with different margin figures for the same product.

A small size does not mean no risk. A micro position can still lose money; the amounts are simply smaller. Choose a size that fits your understanding and your capacity to bear risk.

4. Long and Short

These two terms describe the direction of a position.

Long (a buy position) means buying a contract in the expectation that the price will rise. If the price rises, the position gains. If the price falls, the position loses.

Short (a sell position) means selling a contract first in the expectation that the price will fall. If the price falls, the position gains. If the price rises instead, the position loses.

5. Settlement

Settlement is the process of completing the obligations under a contract, when the rights and duties of both parties are actually fulfilled.

There are two main methods:

• Cash settlement: obligations are settled by paying the difference in value in money. No goods change hands. Only the difference between the contract price and the settlement price is calculated and transferred.

• Physical delivery: obligations are settled by delivering the underlying asset of the contract, for example a commodity, according to the contract terms and applicable procedures.

Most traders close their positions before the contract expires and so never reach physical delivery, but the rules differ for each contract.

This is where the clearing house plays its role:

• Calculating the parties' obligations

• Managing collateral,

• Making sure settlement runs in an orderly way, whether in cash or physical