When you buy a stock, you buy a share in an existing business. When you go long a futures contract, you buy nothing but simply enter into a binding contract for a future purchase of a commodity. The person on the opposite side of your trade enters into a contract for a future sale. This means that for every long there is a short, for every promise to buy a promise to sell. Those promises are backed by margin deposits on both sides.
Futures: Recommended Literature
Winning in the Futures Markets by George Angell is the best introductory book for futures traders (and the only book by that author I recommend). The Futures Game by Teweles and Jones is a mini-encyclopedia that has educated generations of futures traders (be sure to get the latest edition). Economics of Futures Trading by Thomas A. Hieronymus is a profound book, but it’s long been out of print—try finding a used copy. Last but not least, there is a chapter on futures in my book Come into My Trading Room.
Nobody expressed the basic principles of futures trading better than the late Thomas Hieronymus in his Economics of Futures Trading. One of the deepest and wisest books on futures, it unfortunately has been out of print for many decades. Probably because this is not a “how to” book, nobody cares to reprint it, with only an occasional used copy turning up on book-selling websites. Leafing through my old copy, I want to share with you several quotes, before we turn to the topic of shorting futures. ...