This allows traders and investors to take a view on the direction of prices over a longer period of time by buying/selling longer dated contracts. Moreover, futures contracts enable traders to speculate in which direction the prices of the underlying assets go and open either a short or long position. Speculators are individual investors who want to benefit from the underlying asset’s price movements and don’t want to receive the physical assets.

What Should I Look Out for When Selecting a Futures Trading Platform?

Before you start trading futures, you need to meet your broker’s minimum deposit requirements. Instead, they typically close their positions before the contract expires, either to secure a profit or limit potential losses. Reflecting on my achievements and missteps in futures trading, this piece is meant to offer lessons for traders of every background. Futures trading usually involves leverage and the broker requires an initial margin, a small part of the contract value.

Understanding the Fundamentals of Futures Trading

Futures allow participants to gain exposure in the market by going either long or short. 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.

Whether you’re looking to hedge risk or speculate on price movement, there’s likely a market that fits your style. Here’s a closer look at the most widely traded futures categories on MetroTrade. 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.

Hedgers – institutional investors

CFDs are highly risky financial instruments that are banned in the U.S. and many other countries due to their potential for significant losses and regulatory concerns. This example is purely hypothetical and doesn’t factor in real-world elements like brokerage fees, taxes, or slippage—all of which can significantly impact profit. Choosing the right broker and futures trading platform can make or break your trading experience. Futures are agreements to buy or sell assets at a set price on a set date in the future.

What Affects Futures Prices?

• At MetroTrade, accounts are opened through StoneX, a regulated clearing partner.
• 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.
• This helps to minimize risk and can make it easier for traders to do business.
• Agreements instead are settled in cash, meaning that investors maintain their position until the final day and have the assurance of closing out their position at the expiration price.
• The column on the left shows the date when each contract is due to expire, while information on prices (including price changes) and volumes can also be seen.
• Besides brokerage fees, you may also face small charges from third parties, like the exchange and regulatory bodies.

It’s fast, unforgiving, but full of potential—if you’re ready to put in the time and effort. Most full-service online brokerages and trading platforms have access to futures trading. You will need to request and be granted approval to begin trading these markets. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 46% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

Futures are traded on margin, meaning you only need to put up a fraction of the contract’s full value to open a position. Trading carries significant risks, including the potential loss of your initial capital or more. Most traders lose money, and trading is not a guaranteed path to wealth.

• With a focus on platform technology, fast reliable trading and low costs, it is a good choice for the experienced high volume trader.
• However, it can equally put you at risk of losing more money than initially invested.
• They require the buyer to purchase a set quantity of a commodity, stock or other security on a selected date and at a specified price.
• Instead of buying individual shares, traders can take a position on the overall market direction with just one futures contract.
• Metals are often seen as safe-haven assets or indicators of industrial demand.

In fact, the use of borrowed cash is extremely common in the buying and selling of these contracts. Futures contracts specify dates when the agreement expires and when physical delivery of the underlying asset is due. But in practice, the vast majority zulutrade overview of traders have no intention of taking possession of the asset in question. As with almost all derivatives, futures traders can make money when asset prices rise or fall.

Currency futures trade nearly 24 hours a day, offering opportunities during both U.S. and international sessions. They offer opportunities tied to supply/demand shocks, geopolitical risk, and economic cycles. These markets may be influenced by corporate earnings, interest rate decisions, inflation reports, global economic news and other factors that affect the stock market. These features make futures a go-to vehicle for traders seeking flexibility and global market access.

Futures Trading

To protect the business, it would buy that farmer’s contract to hedge against paying higher prices if there is a supply shortage. The offers that appear on this site are from companies that compensate us. But this compensation does not influence the information we publish, or the reviews that you see on this site. We do not include the universe of companies or financial offers that may be available to you. For most retail traders, understanding the basics is enough to get started.

Which Futures Contract Should You Trade?

Their only interest is to earn a profit from trying to predict the price changes, which is why they close their positions before the futures contracts expire. The buyer of a futures contract must take possession of the underlying stocks or shares at the time of expiration and not before. American-style options give the holder the right, but not the obligation, to buy or sell the underlying asset anytime before the expiration date of the contract. The last trading day of oil futures, for example, is the final day that a futures contract may trade or be closed out prior to the delivery of the underlying asset or cash settlement. Usually, most futures result in a cash settlement, instead of a delivery of the physical commodity.

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. 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. As shown in the table, opening a Micro E-mini Dow Jones position requires $854.10, but you’ll also need a maintenance margin to keep it open.

Think of a corn farmer who must lay out many thousands of dollars at the beginning of the planting season in hopes of selling at a profit when the harvest arrives. The farmer might use a futures contract to hedge exposure to lower prices at harvest. No matter what the actual price is when the corn is ripe, the farmer has locked in a price that guarantees a profit. Usually, the futures exchanges’ initial margin amount is around 3% – 10% of the underlying contract value. It is much lower than an equity position where the margin account required is 50% or more of its total value. For most retail traders, the exact math behind calculating the value of a futures contract isn’t necessary—you’re more focused on market movement and price changes.