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How to Trade Futures: Platforms, Strategies, and Pros and Cons

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If the equity drops below the maintenance margin, a trader must make a deposit to bring the account back up to the initial margin. To gain access to futures markets, though, they may ask more in-depth questions than when you opened a standard stock brokerage account. Futures contracts can be bought with very high leverage if the broker deems it appropriate. That asset might be soybeans, coffee, oil, individual stocks, exchange-traded funds, cryptocurrencies or a range of others. Futures contracts can be used by many kinds of financial players, including investors and speculators, as well as companies that actually want to take physical delivery of the commodity or supply it. Much like futures traded on traditional assets, crypto futures are a way to bet on the price direction of certain cryptocurrencies without holding the underlying tokens.

What are futures contracts?

Interactive Brokers and tastytrade offer attractive pricing and powerful desktop platforms. Interactive Brokers is more geared toward professional investors and has much more news and research, while tastytrade is quick and convenient for individual traders. Finally, a trade journal can be a valuable tool for accountability and self-reflection. A journal allows you to track your trades and record important information such as entry and exit prices, stop loss levels, and trade duration. By analyzing past trades, you can identify patterns and trends that may have led to success or failures and adjust your approach accordingly. A trade journal is an important tool for you to evaluate your performance and potentially improve your trading strategy.

Developing a Futures Trading Plan

Webull Financial, LLC is a CFTC registered Futures Commission Merchant and NFA Member. Please read the Risk Disclosure Statement and other relevant Futures Disclosures located at /fcm-disclosures prior to trading futures products. Interactive Brokers charges as little as $0.08 per Small Exchange fortfs forex broker review futures contract. There are also E-Mini and E-Micro contracts and there are often options on futures contracts available. Commission aside, some brokers also charge monthly platform fees and market data fees, so it’s important to consider all costs before selecting a futures trading platform.


If traders believe a specific equity is due for a fall and sell a futures contract, and the market declines as expected, traders can buy back the contract at a lower price, profiting from the difference. As with trading stocks or other financial assets, it’s important https://forexbitcoin.info/ for investors to develop a plan for trading futures that outlines entry and exit strategies as well as risk management rules. Whether you’re looking at stock market futures, options stocks, commodity stocks, equity futures, contract financing and more.

  1. These are usually prescribed by the exchange as a percentage of the total value of the derivative contracts.
  2. View futures price movements and trading activity in a heatmap with streaming real-time quotes.
  3. They are significant players in the market because of their aggressive trading tactics, sophisticated technology, and ability to take on substantial risks.
  4. Futures trading is not suitable for every investor due to its complexity and risk.

If you want to know how to trade futures for beginners, this is a good place to start. Remember, there are a few places where you can land in the market. Futures are not always a free-for-all, and they are often only as complicated as you make them.

Schwab may increase its “house” maintenance margin requirements at any time and is not required to provide you with advance written notice. You can open an account with Schwab, and qualified clients can apply for futures approval. You can’t predict the future, but you can try to predict — or hedge against — how much certain goods will cost when they arrive.

Individual traders have different strategies, risk tolerance, and amounts of capital at stake. With the advent of electronic trading platforms, individual traders have easier access to futures markets, allowing them to participate alongside institutional investors. Measured by volume, most futures are traded by commercial or institutional entities. Of these, most are hedgers looking to cut their risk of financial losses, as in our examples thus far.

Before using debt to enter a trade, it is wise to carefully consider your risk tolerance. Futures can also help an investor diversify and participate more directly in certain asset classes. A futures contract on the other hand can be based directly on the price of crude oil without the added risk factors that a company may bring.

One is “initial margin,” which is not the same as margin in stock trading. Secondly, equity in a futures account is “marked to market” daily. Futures are derivative contracts that let you speculate on the future price of some asset or commodity, or to let you hedge against existing positions. Because they utilize leverage, futures can amplify your bets, making for larger returns, but also larger losses. The most common strategy in futures trading is a directional strategy where a trader bets on the direction of a certain commodity or a financial instrument.

If the market moves against the position, traders could face margin calls, requiring more funds to be deposited. If these margin requirements are not met, then the position may be closed at a loss. Therefore, while leverage can magnify gains, it can also magnify losses, sometimes exceeding the initial investment. Proprietary trading firms trade their own capital, not that of clients. These firms are in the business of making speculative trades to benefit directly from market moves. They are significant players in the market because of their aggressive trading tactics, sophisticated technology, and ability to take on substantial risks.

They are contract size, contract value, tick size, price limits, mark-to-market and margin call. To illustrate the fundamental aspects of futures trading, we will focus on their use with equity securities. However, investors also use futures for commodities, currencies, cryptocurrencies and fixed-income investments.

But short-selling lets investors do the opposite — borrow money to bet an asset’s price will fall so they can buy later at a lower price. With speculators, investors, hedgers and others buying and selling daily, there is a lively and relatively liquid market for these contracts. One way to get started is to explore futures that are relevant to the companies, industries, or sectors you’re already knowledgeable about. For instance, if you’ve been a long-time S&P 500 investor, an S&P 500 futures contract may be a market to explore. Yes, we work hard every day to teach day trading, swing trading, options futures, scalping, and all that fun trading stuff. But we also like to teach you what’s beneath the Foundation of the stock market.

Currency futures should not be confused with spot forex trading, which is more prevalent among individual traders. Will has written professionally for investment and finance publications in both the U.S. and Canada since 2004. A native of Toronto, Canada, his sole objective is to help people become better and more informed investors. Fascinated by how companies make money, he’s a keen student of business history. Married and now living in Halifax, Nova Scotia, he’s also got an interest in equity and debt crowdfunding. However, it would give you $300,000 in notional value, three times the amount by cash alone or through your margin account at your broker, for significantly less of an outlay in actual cash.