You might be wondering what futures are. A futures contract is an agreement between two parties to buy or sell a commodity or security at a predetermined price at a future date. The vast majority of futures contracts fail to deliver the underlying commodity or security. Because most futures transactions are purely speculative, they provide a way to hedge risks or profit.
The first step toward maximizing the potential of your assets is to find the best futures to trade. Selecting a futures broker is only the beginning of futures trading. You must also select a proper product or market, as well as decide the appropriate size of your trading account and develop a trading strategy.
Futures contracts come in a variety of shapes and sizes. One that is ideal for you may not be ideal for another trader. Markets, on the other hand, have distinct personalities and are as different as the people who trade them. When choosing a market to trade, keep the following crucial characteristics in mind:
- Volatility. Because some futures contracts have a wider daily trading range than others, they are considered more volatile. Volatility is an important factor in calculating risk and reward potential. You might select more volatile contracts because the profit potential is higher. The transactional cost is practically unchanged. Others may find that the contracts with the lowest volatility are better suited to their tactics, as increased volatility raises the risk of losing money.
- Liquidity. Choose extremely liquid products while you’re first starting out. Trade in active markets with enough volume to allow you to enter and exit orders without significantly altering pricing. This will ensure that you can quit a position with the same ease with which you entered it.
- The size of the contract. Select a contract size that is appropriate for your account and trading strategy. You have the option of choosing between a conventional contract and a smaller version known as an E-mini contract. E-mini contracts are traded electronically, are very liquid, and have a minimal starting margin requirement. Micro E-mini contracts, which are smaller, are also an option.
Eurodollar Futures
Eurodollar futures are the most actively traded interest rates in the world. They are a valuable and cost-effective financial instrument for hedging interest rate variations in the United States dollar. Eurodollars are essentially U.S. dollars held in commercial banks outside of the United States. Among their advantages are:
On the CME Globex trading platform, over 98 percent of Eurodollar futures are being traded electronically.
E-mini S&P 500 Futures
E-mini S&P 500 futures, denoted by the ticker symbol ES, are an excellent way to increase or manage your exposure to large-cap firms in the United States stock market. They provide an efficient, liquid, and cost-effective option to invest in the S&P 500 Index, which tracks 500 of the top firms in the United States. The following are some of the advantages of ES futures:
Crude Oil Futures
Crude oil futures are the most cost-effective option to trade the international oil markets. The most commonly traded crude oil contract, the NYMEX WTI, trades around 1.2 million contracts each day. To clarify, one contract equals 1,000 barrels and is worth about $44,740. WTI futures on the NYMEX provide direct access to the global oil market, which is a significant benefit over alternative trading options. If you fit into one of the following two groups, you can trade crude oil futures:
- Hedger. These futures can help you mitigate the impact of anticipated price variations on the value of your oil-related assets.
- Speculator. Crude oil futures can be used to express and profit from your opinions on the direction of oil prices.
Year Treasury Note Futures
Treasury futures are a cost-effective option to trade the US government bond market, which has the highest level of security and diversification of any government bond market in the world. These highly liquid futures can be used to possibly boost income, hedge interest rate risk, spread trade, speculate on interest rates, and modify portfolio duration.
Micro E-mini S&P 500 Index Futures
Micro E-mini futures are a tenth of an E-mini contract’s size. They allow you to trade in the equity index markets in a straightforward and cost-effective manner. These futures help you manage your exposure to the 500 largest companies in the United States. The following are some of the advantages of trading equity index futures:
Which futures are the best to trade?
E-Mini S&P 500 futures (ES) are a wonderful place to start for day traders because they represent a decent middle ground. At $500, the margins are modest, and the volume is slightly higher than crude oil. Holding a single contract for the duration of a normal trading day may result in a $7,518 profit/loss swing (150.63 points x $50/point).
Micro Emini futures are what they sound like.
What exactly are they? Micro E-mini Futures are miniature copies of the CME Group’s popular E-mini stock index futures contracts, measuring barely a tenth of the size. Because traditional E-minis had grown too expensive for many traders, the CME Group introduced them to allow them access to the liquid futures market. The smaller Micro contracts also give traders more freedom and allow them to control their risks more precisely.
Why are futures preferable to options?
- Futures and options are common derivatives contracts used by hedgers and speculators on a wide range of underlying securities.
- Futures have various advantages over options, including being easier to comprehend and value, allowing for wider margin use, and being more liquid.
- Even yet, futures are more complicated than the underlying assets they track. Before you trade futures, be sure you’re aware of all the hazards.
Is it safe to trade futures?
They are riskier than guaranteed fixed-income investments, much like equity investments. However, many people believe that trading futures is riskier than trading stocks because of the leverage inherent in futures trading.
Is trading futures difficult?
Keep in mind that futures trading is difficult labor that takes a significant amount of time and effort. Even for the most experienced trader, studying charts, reading market commentary, and staying on top of the news may be a lot.
Is it worthwhile to trade futures?
Futures are financial derivatives that derive value from a financial asset, such as a typical stock, bond, or stock index, and can be used to get exposure to a variety of financial instruments, including stocks, indexes, currencies, and commodities. Futures are an excellent tool for risk management and hedging; whether someone is already exposed to or gains from speculation, it is primarily due to their desire to hedge risks.
Crude Oil
Crude oil is a natural-occurring unrefined petroleum and a fossil fuel that consists of organic materials and hydrocarbon reserves, making it one of the greatest commodities to trade.
- Crude oils are fossil fuels that are not renewable. As a result, it is restricted and cannot be refilled after it has been used.
- Because it is one of the largest suppliers of crude, political events in the Middle East have an impact on crude oil prices.
- Natural disasters that have the ability to disrupt crude oil production and raise its price.
Aluminium
Aluminium is a lightweight metal that is used in a variety of industries, making it an excellent commodity to trade.
Aluminium is widely utilized in industries such as autos, construction, and electronics, and it is in high demand.
- Bauxite is used to make aluminum, and China is the world’s largest producer and user. The demand for aluminum in China’s transportation and construction industries has an impact on its pricing.
- Aluminum production costs are also affected by the price of oil and energy.
As a result, aluminium is an excellent commodity to trade because of its wide range of price changes.
Copper
Copper is a commonly utilized metal in industries for electrical wire, utensils, machinery, and other applications.
- Copper is traded as a commodity in order to speculate on global industrial expansion.
- Copper prices are influenced by demand and supply in the building industry.
The metal is known as one of the best commodities to trade in India because of its diverse features.
Natural Gas
Natural gas is incredibly environmentally friendly, and numerous industries have started utilising it for diverse purposes in recent years.
- Natural gas is projected to have increased demand in the future because it is less expensive than oil.
- Natural gas prices in Asia are connected to oil prices. The price of CNG is affected by changes in oil prices.
- Imports and exports, economic development, storage levels, and other factors all influence prices.
Natural gas can become a profitable commodity to trade if all of these characteristics are together.
Gold
Gold is one of the world’s oldest and most valuable commodities, and it has thus become a significant element of the financial world.
China, Australia, and Canada are the world’s largest gold producers, while India is the world’s largest gold consumer.
- Gold is regarded as a safe haven asset that protects against economic collapse.
- When inflation grows, the value of the currency decreases, and as a result, individuals prefer to invest in gold as a hedge against inflation.
- Because gold is mostly imported, if the rupee falls versus the dollar, gold prices will certainly rise in terms of the rupee.
Gold is the most popular commodity to trade since it can be traded in contracts of various sizes, such as Gold mini, Gold Guinea, Gold Petal, and so on.