What are futures and how do you trade them?

Why trade futures?

1. Avoid overnight funding charges
2. Access our deep liquidity
3. Trade with leverage
4. Go long or short
5. Hedge your existing positions

When trading with leverage, it is important to remember that your profit or loss will be determined by the total size of your position, not just the margin used to open it. This means there is an inherent risk that you could make a loss (or a profit) that could far outweigh your initial capital outlay.

Go long or short

When trading futures, you can go both long or short. You’d go long if you believed that the underlying market price will rise, and you’d go short if you believed it will fall.

With our CFD futures, your profit or loss is determined by the accuracy of your prediction, and the overall size of the market movement.

Hedge your existing positions

Hedging with futures enables you to control your exposure to risk in an underlying market. For example, if you own shares in companies on the FTSE 100 and are concerned about their value dropping, you could short a FTSE 100 index future – the profits from which would hopefully offset a proportion of your share position losses.

If you had current short positions on the other hand, you could go long on an index future in case the market rises, with the idea that your long profits would offset your short losses.

How to trade futures

To trade futures with CFDs, follow the steps below:

1. Understand how futures trading works
2. Pick a futures market to trade
3. Decide whether to go long or short
4. Place your first trade
5. Set your stops and limits
6. Monitor and close your position

Pick a futures market to trade

With various futures markets to choose from, you should establish which one is most-suited to your individual trading style. Some indices – the Germany 40 for example – experience higher volatility than others, and could be better suited to short-term day traders.

Other markets, such as gold or silver commodity futures are often preferred by traders who have lower risk appetites and enjoy markets with lower volatility. Remember, we offer futures and forwards on indices, bonds, interest rates, shares, forex and ETFs.

Decide whether to go long or short

Going long means that you’re speculating on the value of a future increasing, and going short means that you’re speculating on its value decreasing.

If you think that the underlying price of a future will increase based on your own fundamental and technical analysis, you can open a long position. If your analysis suggests that the underlying market price will fall, you could open a short position.

Place your first trade

To place your first trade, go to our trading platform and select a market. Next, select the ‘Futures’ tab on the price chart, decide whether you want to buy or sell the underlying market, and choose your position size. On our mobile app, futures and forward markets are listed separately to spot and cash markets.

Set your stops and limits

Before you open your position, you should consider adding stops and limits to your trade. Stops and limits are highly recommended tools for managing your risk while trading futures.

A stop order will close your position automatically if the price moves to a less favourable level, while a limit closing order will close your position automatically if it moves to a more favourable one (while a limit entry order would automatically open one.)

We offer normal, trailing and guaranteed stops, and you can set your stops and limits directly from the deal ticket.¹ Once you’re happy with your levels, place your deal.

Monitor and close your position

After you’ve placed your trade, you’ll need to monitor it to make sure that the markets are behaving in the way that you expected. If they aren’t, you might want to close your trade to minimise your losses. If they are, you might want to close your trade after having achieved a satisfactory profit.

Remember, you can close a futures contract trade before the expiry date of the contract arrives.

Futures contract trading example

With financial derivatives such as CFDs, you’ll be speculating on the price movements of a futures contract rather than buying and selling the contract itself.

Say it’s April and you think the price of oil is going to rise in the future – you could open a long CFD on a June oil future. Your profit is determined by how much the price of oil has risen by the future’s expiry, and the size of your position – less any charges. These will include your spread and any other costs or charges.

Alternatively, if you think that the price of oil is going to fall, you could go short with a CFD on the oil future. In this example, you’d profit based on how much the oil price fell and the size of your position (less the spread amount) and any fees incurred.

In both scenarios, your position would be closed automatically in June – but you could close it before if you wanted. Below, you’ll see a graphic of the futures tab in our trading platform. If you thought that the underlying market price was going to rise, you’d buy the market on your CFD trading account. If you thought that the underlying market price was going to fall, you’d sell.

The months for a futures contract will vary, and the example given here which uses June is for explanatory purposes. You should check the expiry of a futures contract before you open a position.

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