Interest rate futures, such as Treasury bonds, enable traders to manage interest rate risk or express an opinion on rate movements. Currency futures allow you to express an opinion on foreign exchange risk. Futures contracts can lock in current prices of assets at a fixed price at a set date in the future. Futures contracts derive their value from underlying assets, either commodities such as gold, gains, what, or oil, or financial securities like stocks or bonds.

Some traders treat it like a full-time job, while others focus on just a few key trading windows. The image above shows the list of available futures contracts for the CAC 40 index, with different maturities ranging from the nearest expiration in September 2024 to June 2029. Each contract is identified by its unique code (e.g., FCE0924 for September 2024), along with the number of days left until expiration (D). When selecting a broker, ensure they are registered with the CFTC, which oversees futures trading in the United States. International traders should look for oversight from reputable financial authorities in their region, such as the FCA in the UK, ASIC in Australia, or MAS in Singapore.

They can be impacted by the macroeconomic and geopolitical landscape, supply- and demand-related news, industry-specific developments and so on. After a few weeks of consistently executing your strategy, you can introduce more nuanced factors like market sentiment or broader economic conditions. On top of reading financial and economic news, I also continually invest in my education by reading trading books and I encourage any new trader to do the same. If a reasonable trading budget is out of reach, take your time to build skills and experience with a paper trading simulator before diving in. Because no single trade outcome is ever guaranteed, your strategy’s true strength (if it has an edge) will only reveal itself over a series of trades. Now, let’s focus on the E-Mini Nasdaq Future, which has an initial margin requirement of $3,224.60.

Setting a Realistic Trading Capital

Having too much capital at risk can increase the likelihood of making impulsive, emotion-driven decisions, particularly for newer traders. You can estimate this by testing your strategy or deciding how many losses you can take in a day. That’s why I always maintain a buffer—funds that go beyond both the required margin and my trading strategy’s maximum drawdown. Getting started with futures isn’t rocket science, but consistently making profits is a whole different ballgame. Futures contracts are versatile instruments and the way they have been adapted to support different purposes can at first make trading them appear complicated. It lets you review both technical and emotional decisions, helping you improve more quickly than just tracking P&L alone.

How much money do you need to trade futures?

Tastytrade’s platform boasts powerful tools and an easy-to-use layout. Futures pricing at tastytrade is competitive and the broker’s commissions for options trading are even better. Traders who love charts will love tastytrade, but it’s worth noting that research-based resources like news headlines and commentary are sparse. Futures markets, especially those dealing with popular commodities and financial instruments, have high liquidity levels.

Avoid holding physically settled contracts into expiration unless you’re ready to take delivery, which most retail traders aren’t. In fact, many futures brokers do not allow physically settled contracts to expire, and instead force them to be closed out before expiration. Whether you are trading futures to hedge a portfolio, speculate on price movements, or gain exposure to hard-to-access markets, the appeal lies in precision and efficiency. Taking a long position involves purchasing a contract with the expectation that the underlying asset will rise from the spot price (this is the price for immediate settlement and delivery).

An investor gains if the underlying asset’s price is below the contract price and loses if the current price is above the contract price. A futures contract allows a trader to speculate on a commodity’s price. If a trader buys a futures contract and the price rises above the original contract price at expiration, there is a profit.

• Margins typically range from 3% to 12% of the contract’s notional value, depending on the asset and market volatility.
• A futures contract allows a trader to speculate on a commodity’s price.
• Now let’s assume that the WTI price reaches $80 per barrel at the expiration date, an improvement of $10 from the entry price.
• Visit the eToro Academy to learn more about popular investment strategies which use futures.

Types of futures traders

Selling a futures contract can also be relatively easier than short-selling stocks. Trading futures instead of stocks provides the advantage of high leverage, allowing investors to control assets with a small amount of capital. Additionally, futures markets are almost always open, offering flexibility to trade outside traditional market hours and respond quickly to global events. On the other hand, institutional investors or retail traders may use futures for speculation and attempt to profit from volatility and price trends. When trading futures, speculators can use leverage to manage positions with only a portion of the total contract value, which can increase both profits and losses.

How can I trade futures?

Let’s say that Trader A believes that the WTI oil price benchmark will rise in value, and they wish to take advantage of this by trading futures contracts. One massive benefit of futures trading is that high levels of leverage are available. In fact, the use of borrowed cash is extremely common in the buying and selling of these contracts.

Some traders go all out with multi-screen setups, but I like to keep things simple—a 15-inch MacBook Air is minimalist yet powerful enough to handle all my trading needs. Regarding expiration, traders typically choose the contract with the nearest expiration date, which is known as the active contract, for better liquidity. Forex trader best Picking the right position size is more than just doing the math—it’s about feeling good in the trade. If you’re bored and barely paying attention, your position size is probably too small. Micro and E-Mini contracts issued by exchanges have a lower point value than standard contracts.

• Moreover, a trader can opt to use spread trading between two correlated markets, as different needs tend to move in the same direction.
• The buyer of a futures contract must take possession of the underlying stocks or shares at the time of expiration and not before.
• Futures are derivative contracts with set expiration dates and they trade nearly round the clock six days a week.
• Spreading investments across markets demands knowledge and continuous position monitoring, which may lead to worse trading outcomes.
• These contracts are based on the future value of an individual company’s shares or a stock market index like the S&P 500, Dow Jones Industrial Average, or Nasdaq.

What Is A Futures Contract?

Whichever approach you take, there are a variety of techniques you can use to manage and exit your trading positions. One tool many traders use is the trailing stop, a dynamic stop-loss that moves with the market. This helps lock in profits while still allowing room for gains if the trend continues. It’s smart to test strategies in a demo environment or using micro contracts before risking large amounts of capital.

Wholesalers, meanwhile, could protect themselves from rising costs as well as effectively manage their inventories by trading with futures. Futures can be used to trade a wide variety of assets including commodities, equities, indices, bonds, cryptocurrencies, interest rates and foreign currencies. Profitable futures are taxed on a 60/40 basis, meaning that only 40% of profits are taxed with the standard income tax rate, and the rest, 60%, is taxed as long-term capital gains. Futures contracts offer the possibility to manage risk by anticipating upcoming events that can change market prices. All strategies have ups and downs, but you should decide which one you want to go with and define it for your futures trading. Traders should be wary of trading courses that make exaggerated promises of success with futures trading, as they often set unrealistic expectations instead of building real skills.

Also, the daily settlement of futures prices introduces volatility, with the investment’s value changing significantly from one trading session to the next. Futures trading involves purchasing and selling futures contracts – agreements to buy or sell an asset at a set price on a future date. Futures traders can utilize futures contracts to either hedge against price fluctuations or speculate on market movements by agreeing on a price in the present. The funds required for trading futures can differ based on the contract and the criteria set by the broker. For example, Interactive Brokers charges as little as $0.08 per Small Exchange futures contract.

One of the main benefits of futures contracts for investors is that investors can trade significant sums of money compared to relatively small amounts invested. If the prices fall, the trader can offset the transaction, which means closing a transaction to realize the profits before the contract expires. Before you can start trading, you’ll need a futures-approved brokerage account. MetroTrade partners with StoneX, a trusted and regulated futures clearing firm, to provide account access and execution. Spreading investments across markets demands knowledge and continuous position monitoring, which may lead to worse trading outcomes. But before you start trading futures, you need to get to grips with your chosen asset, as the quantity of different futures varies.

Futures Trading: What It Is, How It Works, Factors, and Pros & Cons

Traders can use them to speculate on a broad spectrum of assets including stocks, forex and commodities. What’s more, participants can choose from contracts with a variety of expiration dates, from one month into the future to years in advance. Futures trading can be used to protect yourself against changes to your existing portfolio of stocks.