Tips for Getting Into Futures Trading

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Information is from sources deemed reliable on the date of publication, but Robinhood does not guarantee its accuracy. Say you take a short position as a seller of an S&P 500 futures contract with an agreed-upon future index value of 3040. If the index rises 5 points to 3045 by the end of the trading day, you’ll lose $1,250 (5 index points times $250.) But if the index falls 5 points to 3035, you’ll gain $1,250.

The first group of traders are commodity producers and processors, also referred to as “commercials”; they could include oil companies, grain millers, and precious metals miners. There are also “speculators,” such as big banks, hedge funds, and individuals who trade for a living, along with retail traders. Leverage means that the trader does not need to put up 100% of the contract’s value amount when entering into a trade. Instead, the broker would require an initial margin amount, which consists of a fraction of the total contract value. On the other hand, a futures trading plan that’s centered around fundamental analysis might generate buy or sell signals based on crop or energy inventory reports.


Many futures contracts—like those based on crude oil, gold, or soybeans—have origins quite literally at ground level (or below ground). What the futures market does over the short and long term can tell investors a lot about what’s going on in the world, such as how much it will cost to fill your gas tank before your summer road trip. At first glance, the futures market may appear arcane, perilous, or suited only for those with nerves of steel.

  • Most futures transactions are purely speculative, so it’s an opportunity to profit or hedge risks, and not usually used to take delivery of the physical good or security for most traders.
  • To trade futures, you must have a margin-enabled brokerage account or eligible IRA account.
  • The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries.
  • All investing comes with a degree of risk, but trading futures contracts can be a very treacherous path for individual investors with limited knowledge of how futures function.
  • If you plan to begin trading futures, be careful because you don’t want to have to take physical delivery.

This includes grains (corn, wheat, etc.), energy (such as natural gas or crude oil), and precious metals like gold or silver, just to name a few. Symbols, securities, futures products, and options are shown for illustrative purposes only. No other charges or expenses, and no market losses will be refunded.

Developing a trading strategy

Whether you want them or not, futures based on decentralized assets are probably only going to grow in popularity as the market matures. Even if they don’t trade them, users should be informed as to how this type of product works and how it is changing the face of the crypto markets moving forward. Speculators are individual investors who want to benefit from the underlying asset’s price movements and don’t want to receive the physical assets. 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. Futures contracts are an investment vehicle that allows the buyer to bet on the future price of a commodity or other security. These may have underlying assets such as oil, stock market indices, currencies, and agricultural products.

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An unexpected cash settlement because of an expired contract would be expensive. For example, a December 2022 corn futures contract traded on the CME Group represents 5,000 bushels of the grain (trading in dollars per bushel) to be delivered by a certain date in December 2022. Crude oil futures represent 1,000 barrels of oil and are quoted in dollars and cents per barrel. Futures can be used to hedge the price movement of the underlying asset.

What Happens if You Hold a Futures Contract Until Expiration?

If the price of jet fuel rises, the futures contract itself becomes more valuable, and the owner of that contract could sell it for more in the futures market. These types of traders can buy and sell the futures contract, with no intention of taking delivery of the underlying commodity; they’re just in the market to wager on price movements. With standardized futures contracts, it’s easy for investors to speculate on the future value of any asset traded on the futures market. If a speculator thinks the price of oil will spike over the next few months, they can buy a futures contract for three months or more from the current date. When the contract is close to the exercise date, they can easily sell the contract, hopefully for a gain. Futures contracts can lock in current prices of assets at a fixed price at a set date in the future.

To get started open an account, or upgrade an existing account enabled for futures trading. Speculators, meanwhile, aim to make money—to “buy low and sell high” (or vice versa). Just like in the trading systems and methods by perry kaufman equity market, speculators are looking to capitalize on the price fluctuations of the futures contract. Before the expiration date, you can decide to liquidate your position or roll it forward.

Advantages and Disadvantages of Futures Trading

Index futures are also available for foreign markets including the German, Frankfurt Exchange-traded (DAX)—which is similar to the Dow Jones—the SMI index in Europe, and the Hang Seng Index (HSI) in Hong Kong. Be sure to ask around to find the broker that works best for you based on price and services. If you understand how futures markets work and how futures could play a role in your portfolio, they can provide some welcome diversification to your holdings. With Schwab, futures traders get streaming futures charting and technical indicators plus in-depth research and commentary—all conveniently built-in to the trading platform. In order to help protect against substantial loss, plan your futures trades carefully before you establish a position in the market. Identify both a profit objective and an exit plan, should the trade go against you.