How a Contract Works
A walked-through example of a compute futures contract from initiation through expiry. Margin mechanics, mark-to-market, and the futures curve.
Worked example
Suppose a neocloud wants to lock in revenue for H100 capacity it will deliver in December 2026. It's currently June 2026.
- The neocloud sells a December 2026 H100 futures contract at the current futures price of, say, $2.20/GPU-hour.
- The contract covers a standardized GPU-hour quantity (e.g., 1000 GPU-hours).
- The neocloud posts margin (a fraction of the contract value) with the clearing house.
- For the next six months, the contract's value moves with the futures price; the neocloud's account is marked-to-market daily.
- If the futures price moves down to $2.00, the neocloud's short position gains value.
- At expiry in December 2026, the contract settles to the index value of the H100 spot price.
If the neocloud also delivers actual H100 capacity in December at spot prices, the futures gain or loss offsets the spot revenue variance. The net is a locked-in revenue at the original $2.20 contract price.
Margin and mark-to-market
Futures contracts require participants to post margin — collateral that protects against default if the position moves against them. Initial margin is posted at contract initiation; maintenance margin must be maintained as the position moves.
Daily mark-to-market means gains and losses are realized into the account each day. Large adverse moves can trigger margin calls.
Expiry and settlement
At expiry, the contract settles to the published reference index value on that date. Financially-settled contracts close out with a cash payment; physically-settled contracts trigger compute delivery.
The futures curve
The set of contract prices across different expiry months forms the futures curve. The shape of the curve tells you what the market expects:
- Contango: Futures higher than spot. Market expects prices to rise (or there's a storage / financing cost).
- Backwardation: Futures lower than spot. Market expects prices to fall (often when new supply is expected).
- Flat: Stable expectations.
For compute, backwardation is the natural expectation as newer GPU generations bring more efficient capacity online. But supply / demand surprises can flip the curve.
Takeaway
Contract mechanics borrow heavily from other commodity futures markets. The next chapter examines actual use cases.