What are futures and how do you trade them?

Differences between listed and OTC futures

Listed products that are in their pure form, like exchange-based futures and options differ from over-the-counter (OTC) products like spread bets and CFDs.

Here are some of the main differences between listed and OTC futures:

Why trade futures?

1. Speculate on a wide range of markets
2. Go long or short
3. Get exposure at low costs
4. Trade with leverage
5. Access our deep liquidity
6. Hedge your existing positions

Markets available with us per product

Below are the futures and forwards markets you can trade with us according to product type.

• US-listed futures: indices (including volatility indices), forex, rates and commodities

• Spread bet futures: indices, commodities, bonds and interest rates

• Spread bet forwards: shares, ETFs and forex

• CFD futures: indices, commodities, bonds and rates

Trade with leverage

Futures contracts are leveraged. So, they enable you to receive increased market exposure for a small deposit – known as ‘margin’ – and your trading provider loans you the rest of the trade’s total amount.³

When trading with leverage, it’s 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’s an inherent risk that you could make a loss (or a profit) that could far outweigh your initial capital outlay, making it important to manage your risk.³

Access our deep liquidity

Liquidity is typically higher in on-exchange futures as there’s a higher number of market participants.

But even though liquidity can be lower in decentralised markets like OTC futures, you’re likely to have your order filled at your desired price with us. This is because of the number of trades that we handle every day – coupled with our international reach and large client base – it means that our futures markets are particularly liquid.

Learn more about our best execution times and deep liquidity

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 you’re concerned about them dropping in value, you could short a FTSE 100 index future. Your potential profits from the trade could 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 potential long profits would offset your short losses.

How to trade futures

To trade futures with us, follow the steps below:

1. Understand how futures trading works
2. Pick a futures market to trade
3. Create an account and log in
4. Decide whether to go long or short
5. Place your first trade
6. Manage your risk
7. 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 – like the Germany 40 – experience higher volatility than others, and could be better suited to day traders for example.

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. Depending on your needs, you’ll also choose the products to use for exposure to your preferred markets.

Create an account and log in

We’re a FTSE 250 company with 50 years’ experience. To start trading futures on our award-winning trading platform,⁴ you can create a live account with us.

Our spreads and commissions are among the lowest in the industry. You’ll either pay a spread or commission, depending on the product you’re trading with.

Find out more about futures spreads and charges

We have a diverse range of exchange-traded futures as well as OTC futures and forwards offerings, which include the most popular indices, commodities, bonds, forex pairs and shares on the market.

Decide whether to go long or short

Going long means that you’re speculating on the value of a future’s underlying increasing; 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’d open a long position. If, instead, your analysis suggests that the underlying market price will fall, you’d open a short position. If the market moves in your favour, you can close your position for a profit. If the market moves against your position and you close your trade at an unfavourable price, you’ll incur a loss.

Place your first trade

To place your first trade, go to our trading platform, choose an account type and select a market. Decide whether you want to buy or sell the underlying market, and choose your position size.

This is how you’d take an oil futures position using a CFD account with us:*

On our mobile app, futures and forward markets are listed separately to spot and cash markets in spread bet and CFD accounts.

* The interface of our streamlined listed options and futures platform from tastytrade looks different.

Manage your risk

Managing your risk by using tools such as stop-loss and limit-close orders can help you avoid significant losses while aiming to lock in profits. These risk management tools are used to exit a trade and are also referred to as ‘stop and limit orders’ – it’s important to not confuse these with stop-entry and limit-entry orders, which are types of market orders that are used to enter a trade.

A stop-loss order will close your position automatically if the price moves to a less favourable level that you’ve set, while a closing limit order is an automated instruction to exit a trade if it reaches your selected favourable price.

We offer standard, trailing and guaranteed stops,⁵ and you can set your stops and limits to exit a trade directly from the deal ticket. Once you’re happy with your levels, you can place your deal. You can also set or adjust these exit levels after you’ve placed your trade.

Monitor and close your position

After you’ve placed your trade and it’s been filled, 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 profit that’s satisfactory for you.

Remember, you don’t have to wait until the contract’s expiry date to close your position – you can exit a futures trade before the last trading day.¹

Futures trading example

Say it’s July and you think the price of oil is going to rise in the future – you could open a long position on a September 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 relevant charges (eg our spread).

Alternatively, if you think that the price of oil is going to fall, you could go short 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 amount of relevant costs and charges).

In both scenarios, your position would be closed automatically in September – but you could close it before by the last trading day.1 The months for a futures contract will vary – the example given here (which uses September) is for explanatory purposes only. You should check the expiry of a futures contract before you open a position.

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