Managing futures risk: Understanding how much you stand to make or lose
The leverage futures offer can cut both ways.
Welcome to Sherwood’s deep dive into futures markets, presented in partnership with 
In this guide, we’ll help you understand how to manage futures risk. While we’ve previously discussed leverage as one of the benefits of trading futures, it’s important to remember that leverage is a double-edged sword. When things go your way, futures can seem like a money multiplier, but when the market moves in the opposite direction of your futures trade, you stand to lose even more. And the bigger the swing, the bigger the risk.
We hope it all goes the right way every time, but the best way to approach risk management with futures is not to ask, “How much could I profit if all goes as I think it will,” but rather, “How much do I stand to lose if all goes wrong?”
Let’s look at how things could go after you’ve decided to buy that first futures contract. We’ll stick with the previous oil example, which has once again become quite topical. You believe oil is cheap and is about to soar due to geopolitical tensions, so you buy one crude oil futures contract for $60, add $6,000 to your account for the margin requirement, and wait for that liquid gold to work its magic.
The first day, the price goes up $0.10. The tick size for crude oil is 0.01, so it’s gone up 10 ticks, increasing your contract’s notional value to $60,100 — a nice $100 growth in your position. You can see how futures really magnify gains: $0.10 becomes $100!
The next day, OPEC+ announces it’s massively outperformed with oil production, and the price of oil sinks to $55. Yikes! That’s 600 ticks down, or a loss of $6,000 from the notional value from the previous day. So you see how movements are magnified both for the upside as well as the downside.
Depending on the margin requirements — some brokerages call for a different amount for “maintenance margin” rather than opening margin — a trader may have to deposit more into their account at the end of the trading session, which is what’s referred to as a margin call.
My favorite example of how things can go absolutely wrong is from the 1983 movie “Trading Places,” in which the Duke brothers trade orange juice futures on insider information (which wasn’t even illegal at the time!), but are tricked into trading on incorrect information planted by Eddie Murphy and Dan Aykroyd’s characters. Because they believe they know the actual future, they place outsized bets that the price of orange juice will soar, without worrying about the consequences of what will happen if there’s a bumper crop. As the actual data is revealed, the price drops from $1.42 to just $0.29, resulting in a margin call of $394 million to cover the monumental difference between their contracts and the current price. The Duke brothers do not have that much cash, so they are bankrupted. If you want to go deeper into the math, this post does a great job of figuring it all out.
While what happened to the Dukes in 1983 couldn’t happen in 2025 the same way, it’s still important to employ tactics to manage your risk exposure.
Some tools to manage risk include:
Employing stop-loss orders: Probably the two most important things to set up as you implement your futures strategy are both up and down limit orders for the contract that represent your risk tolerance — for example, a sell order if it hits 10% up or 8% down from your initial position.
Managing your position size: This could be through buying fewer contracts or by buying micro or mini versions of the same underlying commodity. For instance, Micro WTI Crude Oil represents one-tenth the size of a standard WTI Crude Oil contract, so one $60 contract’s notional value is $6,000 instead of $60,000.
Diversification: Just as you wouldn’t put 100% of your stock portfolio in a single equity or even a single sector, your futures portfolio should include different sectors and classes.
It’s also important to maintain discipline both when you’re winning and on the losing side: it’s easy to get caught up in “streaks” and feel like you’re carried by magic into piles of winning trades that persuade you to throw caution to the wind and make plays outside your usual approach. Similarly, fears of losing money shouldn’t make you exit positions early if you’ve set up a strategy that may still trend in your favor.
Basically, your decisions shouldn’t stem from fear, greed, or FOMO, and don’t put yourself into a position where you could lose more than you can afford.
