Futures trading is a complex process that can seem intimidating to those just starting out. However, with the right tools and guidance, it is possible for anyone to learn how this exciting form of trading works.
In this guide, we will break down the basics of futures trading, including what it is, how you can get started with the best futures brokers in the business, and what strategies you can use to make the most of your trading.
Whether you are a seasoned trader or just starting out, there is always something new to learn or to refresh when it comes to futures trading, so let’s get into it.
Futures Trading Explained
What is a future or futures contract?
A future is a contract between two parties to buy or sell an asset at a specified price on a certain date in the future. Futures contracts are standardized so that they can be traded on futures exchanges.
What can you trade in futures?
The underlying asset that is traded in a future contract can be anything from commodities, (like oil and gold) to financial instruments like indices, stocks and bonds.
Where does futures trading take place?
Futures contracts are bought and sold on futures exchanges. These exchanges match buyers and sellers of futures contracts and act as a clearinghouse for these trades.
What happens when you make a futures trade?
When you buy a futures contract, you are agreeing to buy the underlying asset at the specified price on the specified date. If you sell a futures contract, you are agreeing to sell the underlying asset at the specified price on the specified date.
What account do I need to trade futures?
Futures contracts are traded in what is called a margin account. This type of account allows you to trade with leverage, which means that you only need to put down a small initial deposit to take on larger investments.
While futures trading can be an exciting and potentially profitable investment strategy, there are also risks involved. It is important to research the markets thoroughly and work with a reputable broker in order to maximize your chances of success.
Futures trading is often considered a high-risk form of trading, and it is important for beginners to carefully weigh the risks and potential rewards before getting started.
Best Futures Brokers
To get started in futures trading, it is important to do your research and select a broker that you feel comfortable working with. In this list, we will introduce you to some of the best futures brokers in the industry and give you some tips on how to choose the right one for your needs.
Tickmill – Best Futures Trading Broker
- Regulated by FCA, LFSA, CySEC, FSCA
- Free Demo Account
- Minimum deposit for futures trading $1000
- Access to 6 futures exchanges : CME, CBOT, NYMEX, COMEX, EUREX and the Small Exchange
Why trade futures with Tickmill?
If you are looking to trade index futures, then Tickmill are offer a multi regulated, and globally trusted platform for you to get started. The proces of trading with Tcikmill is relatively easy, and as a multi asset broker, you can complete a lot more of your online trading under one roof with Tickmill than with many others.
If you are interested in trading futures in Malaysia, or South Africa, or even broadly across Europe, you will find a welcoming spot with Tickmill.
Degiro – Low cost futures broker
- European Futures Trading Specialist
- Futures fees just €0.75 per contract
- 86+ International awards
Find out more about what makes Degiro one of the best futures brokers
With a focus on low costs and commission-free trading, Degiro is a great option for investors looking to get started in futures trading. With connection to various affiliated futures exchanges, Degiro provide European traders a great futures trading service.
Their easy-to-use online platform makes it simple to place trades and manage your portfolio, while their excellent range of educational resources can help novice traders learn the ins and outs of futures trading before you begin.
With futures fees of just €0.75 per trade, you will not find many other low cost futures brokers that can compete with Degiro.
CMC Markets – Innovative Futures Style Product
- Regulated by FCA, ASIC, MAS IIROC
- ‘Next Generation’ trading platform
CMC Markets offers forwards trading, in a ‘nod’ to futures contracts
As one of the biggest names in online trading, CMC Markets is a great option for something very similar to futures trading. They offer a wide variety of markets to trade in, as well as advanced trading platforms and mobile apps to help you stay connected to the markets while on the go but what is offered by CMC markets is actually called ‘forwards’ and not futures.
This is a derivative product that works in a similar way to futures, and options, but is traded on the CMC platform rather than on a futures exchange. CMC Markets are an international broker that brings their offering to users from many countries around the world, whereas many others on this list are more localised to one region or another.
TD Ameritrade – Best US futures broker
- $2.25 per futures contract
- Award winning ‘thinkorswim’ trading platform
- Trade Micro futures
TD Ameritrade bring experience and excellence to futures trading in the US
With a wealth of experience in the financial industry, and a stalwart with US futures traders, TD Ameritrade continues to be one of the top brokers for futures trading. They offer a state-of-the-art trading platform, competitive commissions, and excellent customer support to help you get started with futures trading.
TD Ameritrade are for US traders seeking proper access to financial markets, with a reputable provider.
E*TRADE – US Futures in IRAs*
- $1.50 per contract
- Available in brokerage and *eligible IRAs
- Trade Micro futures on CME, ICE US, and CFE
E*TRADE deliver an award winning futures platform for US traders.
Another big name in online trading, E*TRADE offers everything you need to get started in futures trading, including competitive commissions and fees, educational resources, and a wide range of trading platforms to suit your needs.
Whether you are new to trading or an experienced investor, E*TRADE has the tools and support you need to get set up.
When it comes to futures trading, there is no shortage of options when it comes to brokers. Some of the top names in the industry include Degiro, TD Ameritrade, CMC Markets, and E*TRADE, all of which offer a wide range of services and support for novice investors.
These futures brokers even have online educational resources to help you learn more about the world of futures trading and get started with your first trade, which we will also be helping with below.
Getting Started with Futures Trading
If you are interested in learning how to trade futures, there are several things you will need to do:
1. Choose a trusted futures broker
When you start trading futures, you will need to open an account with a reputable brokerage firm that offers futures trading services. This is usually done online via an online broker that offers access to futures.
There are many different types of futures brokers out there, and it can be difficult to know which one is right for you. Some of the key factors to consider when choosing a futures broker include their level of experience in the industry, their fees or commissions, and their overall reputation.
We have put together a list above of some of the best futures brokers in the market that you may want to put on your shortlist.
2. Do your research
Before investing in any particular futures contract, it is important to have a strong understanding of the underlying asset you will be trading. You will definitely want to research and gain a good understanding of what factors typically drive the price movements of that particular asset, as well as having a good grasp on market conditions and trends in general.
Read up on current market trends and review historical price data to identify likely patterns of behavior. Depending on your personality, you may also want to start following financial news sources or connecting with other traders in online forums or trading communities.
3. Determine your strategy
It is crucial to develop a sound trading strategy, including determining your entry and exit points, as well as risk management strategies. This will help ensure that you are making profitable trades and managing your risks effectively.
There are many different strategies that you can use when trading futures, depending on your goals and level of experience. Some popular strategies include hedging, arbitrage, and trend-following.
With the right tools and knowledge, you can begin futures trading with confidence; but first things first, let’s explore some more details about futures trading strategies.
Futures Trading Strategies
There are many different futures trading strategies that you can use to potentially maximize your returns and minimize your risks.
With that being said, these strategies are not always the easiest to put into place, and you will have to exercise proper risk management to ensure you keep things under control during volatile periods. It is still a good idea to have an understanding of technical analysis in your trading across almost all instruments.
The pullback strategy
It is a strategy used when the market is trending, in either direction. During an uptrend, the general idea behind this strategy is to buy when the market price falls back to a support level, which is usually denoted by a previous price low.
This strategy can be used in any time frame, but it is generally most effective on longer time frames such as the 4-hour chart or the daily chart.
The breakout strategy
A breakout is when the market price breaks out of a consolidation period and moves into new highs (or lows). The idea behind this strategy is to enter the market when the price breaks out of the consolidation period.
This futures trading strategy can be used in any time frame, but it is generally most effective on shorter time frames such as the 15-minute chart or the hourly chart.
The moving average crossover strategy
This is a very popular strategy that is used by many traders. The general idea behind this strategy is to buy when the short-term moving average crosses above the long-term moving average, and sell when the short-term moving average crosses below the long-term moving average.
This strategy can be used in any time frame, but it is generally most effective on longer time frames such as the daily chart or the weekly chart.
Spread trading strategy
This is a futures trading strategy that involves buying and selling two different contracts at different times, where you have spotted a mismatch in pricing, or a shift in market conditions that have impact prices.
The idea behind this strategy is to take advantage of the price differential between the two contracts and hedge your risk. Whilst spread trading reduces the value of your winning futures trades, it locks in profits, which is always a good thing!
Tickmill – Best Futures Trading Broker
- Regulated by FCA, LFSA, CySEC, FSCA
- Free Demo Account
- Minimum deposit for futures trading $1000
- Access to 6 futures exchanges : CME, CBOT, NYMEX, COMEX, EUREX and the Small Exchange