Futures trading, unlike other kinds of investments, such as stocks or bonds, when you trade futures, you do not actually buy anything or own anything. You are speculating on the future direction of the price in the commodity you are trading. This is like a bet on the future price direction. The terms “buy” and “sell” merely indicate the direction you expect future prices will take.

If, for instance, you were speculating in rubber, you would buy a futures contract if you thought the price would be going up in the future. You would sell a futures contract if you thought the price would go down. For every trade, there is always a buyer and a seller. Neither person has to own any rubber to participate. He needs only to deposit sufficient capital with a brokerage firm to ensure that he will be able to pay for the loss if his trade loses money.