Going Long and Short with Futures
Shorting futures needs no borrowing: just sell the contract and profit when the price falls. Gains and losses for longs and shorts are perfectly symmetrical.
Risk warning: forex, CFDs, options, futures and crypto assets usually involve leverage or high volatility, and you can lose more than you put in. This lesson only teaches the concepts; all numbers are for illustration and are not investment advice.
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Text version · Futures Basics, lesson 4: “Going Long and Short with Futures”
Shorting futures needs no borrowing: just sell the contract and profit when the price falls. Gains and losses for longs and shorts are perfectly symmetrical.
Going short: just sell the contract
Shorting stock means borrowing shares first; a futures contract is just an agreement, so selling to open is going short, with nothing to borrow.
Zero-sum: what you make is what I lose
Every futures contract has a long and a short. Before fees, their P&L is the same size in opposite directions, so it always adds up to 0.
Closing: make an opposite trade
The long sells 1 contract and the short buys 1 contract, the positions go to zero and P&L is locked in. Almost all futures are closed out like this before expiration, with no delivery at all.
Key takeaways
- Buying to open = going long; selling to open = going short. Both only need margin, and shorting doesn't require borrowing anything.
- Futures are a zero-sum game: what the longs make is what the shorts lose (ignoring fees).
- Closing = making the opposite trade: longs sell, shorts buy. The position goes to zero and the P&L is locked in.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click “Example: sell at 4,000 → close at 3,900”: how much does the short make? And the long?
- Drag “Index price” to 4,100 points: how much does the long make? Who do the coins flow from and to? How are the two P&L bars related?
- Set contracts to 3, then move the price: does long + short always equal $0?
- Press ▶ to play the market, and click “Both sides close” whenever you're happy to lock in the P&L.
Quiz and explanations
- 1. You sell 1 index futures contract at 4,000 points ($50 per point) and buy it back at 3,900. What's your P&L?
- Answer: +$5,000.The short makes 100 points × $50 = $5,000.
- 2. What's the biggest difference between shorting futures and shorting stocks?
- Answer: Shorting futures doesn't require borrowing the underlying.A future is a contract, so you just sell to open.
- 3. You buy 2 index futures contracts at 4,000 points ($50 per point) and close at 4,060. What are your P&L and that of the short on the other side?
- Answer: You +$6,000, short −$6,000.60 points × $50 × 2 contracts = $6,000. Zero-sum: the short loses exactly the same.
Terms in this lesson
- clearing house (Clearing House): An institution that stands between buyer and seller and guarantees the contract is honored.
- long (Long): Buy first and sell later, betting the price will rise.
- position (Position): The amount of an asset you currently hold (or owe).
- sell (Sell): Hand over an asset you hold in exchange for cash. Once you sell, your profit or loss is locked in.
- short (Short): Borrow and sell first, then buy back to return it, betting the price will fall.