Getting Started Trading Futures

Getting Started Trading Futures

In order to start trading futures, you must have a margin account with a registered commodity futures broker such as but not limited to Interactive Brokers, TradeStation, E*TRADE, Lightspeed, Charles Schwab & TD Ameritrade. The amount of money required to open a margin account varies by the broker but is typically between $2,000 and $10,000. Once you have opened your account, you can begin trading futures contracts.

The Top 5 Futures Exchanges in The World Are:

  1. London Metal Exchange (LME)
  2. Climax Exchange Netherlands
  3. Chicago Mercantile Exchange (CME)
  4. New York Mercantile Exchange (NYMEX)
  5. Dubai Mercantile Exchange (DME)

When trading futures, you are essentially betting on the future price of a particular commodity or financial instrument. In order to do this, you will need to purchase a contract that represents a certain amount of that commodity or instrument. When trading futures you will need to understand what “Ticks” & “Pips” are. Ticks are smaller fractions of a point in futures’ price changes. Each tick is worth a certain fractional value, such as 0.10 or 0.25 points. Pips represent changes in the fourth decimal place in most forex currency pairs. Each of these measurements has a dollar value that’s based on the exchange on which it is traded.

For example, the MESUSS contract represents $5 times the price of the S&P 500 index. The tick size on this contract is 0.025, which means that for each pip, you will be paid $1.25.

The tick value is also different for each exchange. For example, on the CME, the minimum price movement is 0.01, or $10 per contract. This means that one tick on the CME is worth $10. On the Chicago Board of Trade (CBOT), the minimum price movement is 0.25, or $25 per contract. So one tick on the CBOT is worth $25.

The tick value is also different for each commodity. For example, on the CME, one tick of gold is worth $10, while one tick of silver is worth $0.50. This means that each futures contract has a different value depending on the commodity that it is for.

It’s also important to note that the tick value is not the same as the margin requirement. The margin requirement is the amount of money that must be deposited in order to open a position. The tick value is the minimum price movement that will occur on the exchange.

When trading futures contracts, it’s important to be aware of the contract specifications and the tick value. This will help you determine the value of each contract and the risk involved in trading it.

Please note that each type of futures contract is denominated in different values. For example, futures contracts for gold are denominated in 100 troy ounces but wheat contracts are 5,000 bushels.

Different types of futures contracts are denominated in different values. For example, a gold futures contract may be denominated in 100 troy ounces while a wheat contract might be denominated in 5,000 bushels. The value of the underlying asset or commodity being traded will determine the denomination of the contract. 

The denomination of a futures contract is important because it represents the minimum value that can be traded. For example, if gold is trading at $1,200 per ounce and the contract is denominated in 100 troy ounces, then the minimum value of the contract would be $120,000. This is because each tick (or small increment of price movement) on the contract is worth $10 per ounce, and there are a total of 100 troy ounces in the contract. So, if the price of gold moves up by one tick, that would be a $1,000 move in the value of the contract. Similarly, if the price of gold moves down by one tick, that would be a $1,000 move in the value of the contract. 

The denomination of a futures contract can also be important for margin purposes. Margin is the amount of money that must be deposited in order to trade a futures contract, and it is typically a small percentage of the total value of the contract. For example, if the margin requirement for a gold contract is 5%, that means that $5,000 must be deposited in order to trade a contract worth $100,000. So, the denomination of the contract can have an impact on how much money must be deposited in order to trade it.

One of the most important decisions a trader makes is what type of strategy to use. There are many different futures trading strategies out there, so it’s important to find one that best suits your goals and risk tolerance. Some common strategies include going long or short in a position, and calendar spreads (which can be either bullish or bearish).

When deciding which strategy to use, it’s important to consider your goals and risk tolerance. If you’re comfortable with a higher level of risk, then you may want to consider a more aggressive strategy. On the other hand, if you’re looking for a more conservative approach, then a less risky strategy may be a better fit.

Once you’ve decided on a particular strategy, it’s important to stick with it and not second-guess yourself. If you start to doubt your decisions, it can lead to making impulsive trades that can end up costing you money. Trust your gut and stick to your plan! Below is a list of the most common futures trading strategies.

Going Long: 

A long futures trade is initiated when a trader buys a contract, with the expectation that the underlying asset will rise in value.

If the underlying asset does indeed rise in value, the trader will make a profit. However, if the underlying asset falls in value, the trader will incur a loss.

Going Short:

When you go short on a futures contract, you are selling it in anticipation that the underlying asset will fall in value. This strategy is risky because losses can be unlimited if the underlying asset rises in price. Prices can continue to rise indefinitely, so there is no true limit to your potential losses.

If you do choose to go short on a futures contract, be sure to use stop-loss orders to limit your losses. A stop-loss order is an order to sell a security at a certain price. If the price of the underlying asset rises above that price, your stop-loss order will be executed and you will sell the contract.

Going short on a futures contract can be a profitable strategy if used correctly. However, you must be aware of the risks involved and use stop-loss orders to protect yourself from unlimited losses.

Calendar Spreads:

There are two types of calendar spreads bull and bear. In a bull calendar spread, the trader buys a contract with a shorter expiration date and sells one with a longer expiration date. The aim is to profit from the difference between the two prices. In a bear calendar spread, the trader does the reverse, selling the contract with the shorter expiration and buying the one with the longer expiration. The goal is to profit from the difference in price between the two contracts. 

Both types of calendar spreads can be used to speculate on the market direction or to hedge against price risks. For example, a trader who is bullish on the market may use a bull calendar spread to profit from rising prices. A trader who is bearish on the market may use a bear calendar spread to profit from falling prices.

Calendar spreads can also be used to hedge against price risks. For example, a trader who is holding a long position in a stock may use a bull calendar spread to hedge against the risk of the stock price falling. A trader who is holding a short position in a stock may use a bear calendar spread to hedge against the risk of the stock price rising.

Calendar spreads are usually traded using futures contracts, but they can also be traded using options. The two contracts must be for the same underlying asset and have different expiration dates. 

The most important thing to remember when trading calendar spreads is that the price of the underlying asset can move in either direction. If the price moves in the wrong direction, the trader will incur a loss.

When trading calendar spreads, it is important to manage risk carefully. One way to do this is to place stop-loss orders at a level that will limit the loss if the price moves against the position.