Futures vs stocks and ETFs: What investors should know before they trade

STOCKS and exchange-traded funds (ETFs) may be familiar territory for many retail investors, offering exposure to companies, sectors and broader markets. But they are not the only way to gain exposure to movements in financial markets.

As investors follow global developments such as shifts in interest rates, commodity prices and major stock indices more closely, some are also looking for ways to trade these broader market movements.

“Singapore investors have matured a lot over the past few years. Many built their first portfolios in stocks and ETFs, and a growing number now want tools to express a view on the bigger picture,” says Ken Ong, chief executive officer of KGI Securities (Singapore).

That includes movements in interest rates, gold, oil and major stock indices.

Futures trading has also been growing globally. Trading reached 30.64 billion futures contracts in 2025, up 8.6 per cent from a year earlier, according to the Futures Industry Association. In Asia-Pacific, average daily volume on CME Group markets reached a record 1.9 million contracts in 2025.

Futures are one way to trade on these market movements without necessarily owning the asset or market being tracked. KGI Crusoe, KGI Securities’ futures trading platform, is currently available in a simulated environment, with live trading planned at full launch.

But futures work differently from stocks and ETFs, particularly when it comes to margin and leverage, which can magnify both gains and losses. Here’s how they work and what sets them apart from more familiar investments.

Q1. What are you trading when you buy a futures contract?

A futures contract is an agreement to buy or sell an asset or financial product at a specified price on a future date. The asset could be gold, oil or a major stock index.

Futures are used by businesses and investors. For example, an airline that expects to buy large quantities of fuel in the future could use futures to hedge against the risk of rising fuel prices.

You can use futures to trade based on whether you expect a market to rise or fall. If you expect oil prices to rise, for example, you could take a long position in an oil futures contract. If prices rise, the position can gain value, while a fall in prices can lead to a loss. 

Futures contracts also come in different sizes. Micro contracts are smaller versions of some widely traded futures contracts, allowing investors to take on less exposure per contract. For instance, a Micro E-mini S&P 500 futures contract is one-tenth the size of the corresponding E-mini contract.

That smaller size has helped lower the barrier to entry for individual traders. In December 2025, Micro E-mini equity-index contracts accounted for 40.5 per cent of CME Group’s equity-index futures volume.

The contracts are bought and sold through regulated exchanges, where contracts follow standard terms. A central clearing house stands between buyers and sellers and helps ensure both sides meet their obligations. 

Q2. How is trading futures different from buying a stock or ETF? 

One major difference is ownership. When you buy a stock, you own a share of a company. When you purchase an ETF, you own units in a fund. By contrast, futures contracts do not give you ownership of the asset or market they track. Their value changes as the market moves.  

Another important difference is margin. When you buy a stock, you generally pay the full purchase price upfront. With futures, you typically put up only a fraction of the contract’s total value as initial margin.

Margin is essentially collateral for the position. Take a Micro E-mini S&P 500 futures contract as an example. Each index point is worth US$5. If the S&P 500 were at 6,000 points, one contract would represent US$30,000 of market exposure.

You would not have to put up the full US$30,000 to open the position. Instead, you would deposit the margin required by your broker. The exact amount can change with market conditions and may vary between brokers.

That makes futures more capital-efficient, but it also means you need to understand how much your position could gain or lose relative to the funds you have deposited.

Q3. Why can losses from futures trading build up quickly?

Because only part of a futures contract’s value needs to be put up as margin, a relatively small deposit can give you exposure to a much larger trade. This is known as leverage.

If the market moves as expected, the value of your position can increase significantly. But the reverse is also true: a relatively small market move in the opposite direction can result in a significant loss.

Using the same Micro E-mini S&P 500 contract, a 1 per cent fall from an index level of 6,000 would mean a decline of 60 points. At US$5 a point, that would translate into a US$300 loss on one contract. The same 1 per cent move in the other direction would produce a US$300 gain.

The gain or loss is therefore based on the full market exposure of the contract, not simply on the amount you put up as margin. This is why even a relatively modest market move can translate into a much larger percentage change relative to the funds deposited.

Futures positions are generally adjusted as market prices change, meaning gains and losses are reflected as the market moves rather than only when the position is closed.

If losses cause the amount in your account to fall below the minimum margins required by your broker, you may need to add more money. If this is not done, the broker may reduce or close the position, locking in the loss.

Managing that risk starts with deciding how large a position to take relative to the funds available. Investors may also use stop orders to close a position if the market reaches a predetermined level and keep funds above the minimum margin requirement as a buffer against adverse moves. Stop orders can help limit risk, although they do not guarantee execution at the exact stop price in fast-moving markets.

Smaller contracts can also make position sizing more precise. Retail participation in futures has been growing alongside their availability: CME Group reported that the number of new retail traders rose 56 per cent year on year in the second quarter of 2025.

Q4. Can any retail investor trade futures?

You can trade futures, but you must meet the relevant requirements set by your broker and Singapore’s regulatory framework.

For exchange-listed futures contracts, you generally need to complete a Customer Account Review (CAR) with your broker. For certain unlisted Specified Investment Products (SIPs), a Customer Knowledge Assessment (CKA) may be required instead.

Passing the relevant assessment does not mean every futures contract will be suitable for you. Different contracts have different characteristics, levels of volatility and risks. You should consider your investment objectives, financial circumstances and risk appetite before trading futures.

Q5. Is there a way to practise before putting real money at risk? 

A simulated trading platform can help you learn the basics and see how futures trades respond to market movements before committing real money.

KGI Crusoe is KGI Securities’ simulated futures trading platform, offering access to futures listed across CME Group exchanges, including CME, CBOT, NYMEX and COMEX.

Its simulated environment lets you practise placing trades and monitoring positions as real markets move, without putting real money at stake. Contract details such as size, tick value and expiry, as well as margin and profit or loss, are displayed as you trade. 

This can give you a clearer sense of how futures respond to market movements, including how quickly gains and losses can change, and help you become familiar with concepts such as contract specifications and margin before deciding whether to trade live.

Open a KGI Crusoe demo account between now and Dec 31, 2026, and when the platform goes live in 2027, convert your demo to a live account to have your first three months of market data credited back. You’ll also be automatically entered into a lucky draw to win an iPhone 18 Pro Max. Terms and conditions apply.

Learn more about KGI Crusoe here.

Disclaimer:

This content is for informational purposes only and does not constitute investment advice or an offer, solicitation, or recommendation to buy or sell any securities or financial instruments. It does not take into account your personal investment objectives, financial situation, or holdings. KGI Crusoe (KGI Securities (Singapore) Pte. Ltd.) makes no representation and assumes no liability for the accuracy or completeness of this information, or for any loss arising from its use. 

Investments involve risk of loss. Please exercise caution when making investment decisions. This advertisement has not been reviewed by the Monetary Authority of Singapore.