Both sides are obligated, and that is the single fact that separates a futures contract from an options contract. An option's buyer holds a right they can simply let expire; a futures contract's buyer and seller are both bound to transact at the agreed price when the contract comes due (or to offset the position before then), and neither side can walk away the way an options buyer can. That obligation runs in both directions, which is why a futures position, unlike an options position bought outright, can lose money without any limit tied to a premium paid up front.
Daily settlement, not the delivery date, is where the contract's risk is actually managed, and it is what distinguishes futures from a forward. Each trading day, the exchange's clearing house marks every open futures position to that day's closing price and transfers the day's gain or loss in cash between the two sides' accounts, a process called mark-to-market. A trader whose position has lost value must post additional funds (variation margin) to keep the position open; one whose position has gained can withdraw the gain. A privately negotiated forward contract typically settles only once, at maturity, which means gains and losses accumulate unrealized for the life of the contract rather than being reconciled daily. Our page on the clearing house describes the institution that performs this function and why it removes counterparty risk between the original two traders.
"Margin" means something different here than it does in a securities brokerage account, and the two are easy to confuse because the word is identical. The CFTC's glossary defines initial margin as "customers' funds put up as security for a guarantee of contract fulfillment at the time a futures market position is established." That is a performance bond, refundable if the position is closed without loss, not a loan against which interest accrues. A securities margin account, covered on our own page for margin, is the opposite: money borrowed from a broker to buy securities. Nothing described there applies to futures margin, and treating the two as the same concept is a common and expensive confusion.
Most contracts never reach the delivery date, because most traders offset their position first. Offsetting means entering an equal and opposite futures position before expiration, which closes out the original obligation through the exchange's own bookkeeping rather than through physically delivering or accepting the underlying asset. A trader who bought a contract expecting to profit from a price rise typically sells an identical contract before the delivery date rather than arranging to receive, say, a tanker of oil. Only a small share of open interest in most contracts is settled by actual delivery or cash settlement at expiration; nearly everyone else has already closed their position.
Contango and backwardation, the relationship between near-term and later-dated contract prices, are a real feature of futures markets, and they get their own full treatment on our page for commodities. In brief, when later-dated contracts cost more than expiring ones (contango), a fund or trader that must keep rolling a futures position forward incurs a recurring cost from that roll; the opposite condition (backwardation) works in the position's favor. This page states the concept in a sentence because it applies specifically to a futures-based strategy's economics over time, not to how a single contract works, which is what commodities covers in depth.
