I’ve been a futures broker for almost 25 years. In that time, I’ve had the opportunity to work with all types of investors and assist them with their futures trading.
I’ve decided to compile a list of the most common questions I’m often asked as a futures broker. If you have a question not addressed here, feel free to leave it in the comments below…
1) How does trading futures compare to trading stocks?
Futures trading offers direct access to global commodities and indexes with leverage and lower capital requirements than stocks. Unlike stocks, futures are standardized contracts with expiration dates and trade nearly 24 hours a day.
2) What is a good dollar amount to get started with?
This depends on your goals and the futures markets you plan to trade. Many investors start with $5,000–$10,000, though some micro contracts allow entry with much less capital. Risk tolerance and strategy should guide your starting point.
3) What are some of the most popular commodity futures contracts to trade?
The E-mini S&P 500 index, Crude Oil, Gold, Corn, Euro Currency and Natural Gas and are among the most actively traded contracts. These offer strong liquidity and are closely followed by traders worldwide.
4) Why do futures contracts have expiration dates and how does that work?
Futures contracts are based on agreements to buy or sell at a future date. Each contract has a set expiration date, usually monthly or quarterly. Most traders close or “roll over” positions before expiration to avoid delivery.
5) Are there commodity futures options available to trade?
Yes, many commodity futures have options available. These can be used to hedge risk, develop directional strategies or enhance flexibility in your trading plan.
6) I don’t have to pay commissions with my stockbroker, why do I have to pay commissions with a futures broker?
Futures are exchange-traded instruments that involve specialized routing and clearing. Due to this, futures brokers charge commissions to cover the costs associated with providing exchange access, support and execution quality. Conversely, stockbrokers can offer commission-free trading by using Payment for Order Flow (PFOF), where they’re paid by Market Makers to route customer orders. There is no such business model available to futures brokers, which is why commissions are charged.
7) How do margins work with futures trading?
Think of margins as a performance bond. It’s the amount of funds that must be maintained in your trading account to hold any open futures positions. Margins vary by contract and whether you hold positions intraday or overnight. Margins are set by the futures exchanges and are subject to change without notice.
8) What’s the difference between full-size contracts, mini, and micro futures?
These terms refer to the size of a futures contract. Full-size contracts carry higher value and margin requirements. Mini and micro contracts offer smaller exposure, which makes them more ideal for newer or smaller-scale traders.
9) How are profits and losses calculated in a futures trade?
Profit & loss is calculated by the number of ticks the market moves either in your favor or against you, multiplied by the tick value of the contract. Because futures are leveraged, even small price movements can result in meaningful gains or losses.
10) What does it mean to ‘roll over’ a futures position?
Rolling over means closing an expiring futures position and opening a new one in a later month. It helps maintain a position in the market without taking delivery of the commodity. This technique allows traders to trade in more active contract months even if they have a long term goal for their trade.
11) What are the point values for futures contracts?
Each futures contract has a specific point value. For example, the E-mini S&P 500 moves in 0.25-point increments, worth $12.50 per tick. It’s important to know the tick size and value before trading any contract.
12) Can I enter short positions when trading futures?
Yes, going short is just as easy as going long in futures trading. There’s no uptick rule, and contracts are designed to facilitate both directional views of the market.
13) Can I day trade commodity futures?
Absolutely. Many traders focus on short-term opportunities in futures markets. With low day trade margins and fast-moving markets, futures can be well-suited for intraday strategies.
14) What is futures and options spread trading?
Spread trading involves buying one contract and selling another related one. This can reduce risk and take advantage of price relationships between contracts, markets, or expiration months. For example, a typical futures spread trade involves selling a December Corn contract and buying a September Corn contract.
15) What does a margin call mean when trading futures?
A margin call occurs when your account equity falls below the required maintenance margin for your open positions. You will need to deposit more funds or reduce your positions to meet the current margin requirement.
16) Are my losses limited to my account size?
Because futures use leverage, your losses can exceed your initial investment if not properly managed. Risk management is essential and it is recommended to use stop orders and closely monitor your exposure.
17) Can I phone in my orders or do I have to use a trading platform?
With most futures broker, you can do either. Our clients can trade through our proprietary InsigniaTrader platform or call our 24-hour trade desk for personalized order execution.
18) What is a limit move mean in commodity futures trading?
A limit move is the maximum price movement allowed during a single trading session, set by the futures exchange. It’s designed to curb excessive volatility and give markets time to reassess. It is important for traders to be aware of price limits for the commodity futures contracts they are trading.
19) What does “open interest” refer to?
Open interest is the total number of outstanding contracts that haven’t been closed. It reflects market participation and can help gauge strength behind a move. It is similar to a futures contracts trading volume.
20) What’s the best advice you can give to a futures trader?
The best advice I can offer to futures traders is to focus on learning the markets, manage risk at all times and stay disciplined. Futures trading rewards preparation and patience more than prediction. Keep in mind, it’s very difficult to pick market tops and bottoms. It can be more beneficial to trade with the current market trend.
Futures trading has its pros and cons, just like any other investment.
On the plus side, futures offer great leverage, nearly 24-hour market access and the ability to go long or short with ease. You can trade everything from crude oil and gold to stock indexes and grains, all through standardized contracts on regulated exchanges. But it’s not without risks—because of the leverage, small price moves can have a big impact on your account, for better or worse. Futures also typically require active trade management and a solid understanding of how the markets work. It can be a good investment choice for the right investor, but proper risk management is definitely essential to achieving success.
If you’re ready to take the next step, we invite you to open a futures trading account with Insignia Futures & Options and…
Discover Futures Trading at Its Best
If you have any questions, please leave them in the comments below or feel free to contact me directly – I’ll be happy to help.
Joe Fallico
Principal Futures Broker
Series 3 / Series 30 Licensed
Phone: 1-847-379-5000 – ext. 101
*margins are subject to change without notice
0 Comments