Stock futures are financial contracts obligating the buyer to purchase, or the seller to sell, a specific stock at a predetermined price on a set future date. Unlike options, which give the right but not the obligation to buy or sell, futures contracts must be executed at expiration unless closed out beforehand. This feature makes them powerful tools for hedging and speculation.

Here's how stock futures work: When you enter a futures contract, you agree to the terms set by the contract, including the price (known as the futures price) and the expiration date. If you buy a futures contract (going long), you agree to purchase the underlying stock at the futures price upon expiration. Conversely, if you sell a futures contract (going short), you agree to deliver the stock at the futures price.

Stock futures are traded on futures exchanges, such as the Chicago Mercantile Exchange (CME), which standardize the contracts to ensure smooth trading and settlement. These exchanges also require traders to maintain a margin account, which acts as a security deposit to cover potential losses.

Leverage is a key aspect of futures trading, allowing traders to control large positions with a relatively small amount of capital. However, this also amplifies both potential gains and losses. Prices of stock futures fluctuate based on the underlying stock's performance, market conditions, and time to expiration.

Stock futures are versatile instruments used by traders and investors for hedging against price movements, speculating on future price changes, and managing portfolio risk.