The working of Futures market differs from that of Spot Market. In a futures market, prices on the exchange are not settled immediately, unlike in a traditional spot market. Instead, two counterparties will make a trade on the contract, with settlement on a future date.
Due to how the futures market calculates unrealized profit and loss, a futures market does not allow traders to directly buy or sell the commodity; instead, they are buying a contract representation of the commodity, which will be settled in the future. There are further differences between a perpetual futures market and a traditional futures market
To open a new trade in a futures exchange, there will be margin checks against collateral. There are two types of margin.
In order to open a new position, your collateral needs to be greater than the Initial Margin. If your collateral + unrealized profit and loss fall below your maintenance margin, you will be auto liquidated. This results in penalties and additional fees. You can liquidate yourself before this point to avoid being auto liquidated.
Note that futures prices are different from spot market prices, because of carrying costs and carrying return. The premier futures market, Chicago Mercantile Exchange Group (CME Group), provides a traditional futures contract. But modern exchanges are moving toward the perpetual contract model.
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