An equity future is a standardized contract that is entered into between two counterparties where those counterparties are agreeing today to trade a specified quantity of a specific stock or index, which is referred to as the underlying asset, at a price which is agreed today on a date in the future, which will also be agreed to today and specified within the contract terms. Some key terminology to note with regards to futures contracts. Firstly, the long side of the contract is the counterparty to the trade that is agreeing to buy the underlying asset, that specified stock or index. The short side to the contract is the counterparty who is agreeing to deliver the underlying asset and receive the pre-agreed fixed price, which is also referred to as the future's price.

Despite these terms, referring to your obligations with regards to the futures contract, it is often said that a long position will be long of the futures contract and being short, being obligated to deliver the underlying asset, will be referred to as being the short of the futures contract. Some key features of equity futures are firstly that they are traded on an exchange. Secondly, that the standardization of the future's contract comes from the fact that the exchange on which the futures are traded will be determining those contract terms, the quantity of underlying asset per one contract, the underlying asset itself, and the future delivery dates. Because of the standardization, there are far more contracts with the same contract terms if we're trading over in exchange, using futures, than equivalent forward contracts which provides much greater liquidity. Finally, futures contracts are centrally cleared which involves a clearing house assuming the counterparty risk on both sides of the trade. This ensures that neither counterparty whilst not be paid money that is owed to them under a future's contract, even if the counterparty to the trade defaults on their obligations. The clearing house is assuming that counterparty risk. To ensure that the clearing house does not go bankrupt as a result of default by one counterparty to a trade, both sides of the trade have to pay in a good faith deposit to the clearing house when they enter into futures trades which is referred to as the initial margin. Also, when trading futures contracts, any gains or losses that you make as a result of movements in the futures price are settled on a daily basis. So any gains that you make from the underlying asset moving in your favor are paid to you on a daily basis, any losses that you make as a result of the future's price moving against you need to be paid to the clearing house on a daily basis. Having entered into an equity futures position, you may wish to exit that position prior to the delivery date within the contract itself. This is possible by entering into another trade with the same underlying asset and the same delivery date as your initial trade, but traded in the opposite direction. As a result of these two trades, one which is long, one which is short, both for the same underlying asset and the same delivery date, you are left with no overall exposure. In terms of calculating any gains or losses that you might have made as a result of closing out your position with regards to an index future, the way you'd calculate those gains or losses is to look at the movement in the futures price from the initial futures trade and then the secondary closing out futures trade and multiply this by the dollar value of one index point that will be specified in the futures contracts themselves. And finally, multiply this by the number of contracts that were initially traded.