Getting Started With Futures Trading

Trading can be a very lucrative career. Every day, millions worth of liquidity moves to different traders and brokers. Futures is one of the most popular options to trade next to stocks and forex. However, to succeed in trading, you need the right knowledge to avoid the pitfalls that have led many to lose their money. This futures trader education series hopes to enlighten you on all trading aspects.

What Are Futures?

Futures, as the name would denote, are contracts executed at a future time. It is a contract that two entities agree upon.

Let’s use a farmer selling wheat as an example. The farmer will harvest his wheat in three months but wants to make sure he gets a good price for his crop come harvest time. He wants to lock in the wheat’s current value of $10,000 even though he cannot sell it right now. He worries that in the future, the prices of wheat might go down. In this case, the farmer is the producer/seller of the commodity.

On the other end, we have the manufacturer, who needs the wheat to create bread. He also knows that he has to wait for three months before the wheat’s harvested. He worries that his product’s price might go up in the next three months, so he wants to lock in the price of $10,000.

To protect their interests, the two parties agree to secure the price of $10,000 in a contract. By creating this contract, they prevent the risk of prices going higher or lower. The contract which executes in the future is a Futures Contract.

In three months, the contract will go to the execution date, which is an important factor in futures trading.

What Is Futures Trading?

While the contract goes on its steady pace until the execution date, many things can happen before the transaction completes. Futures trading occurs in the three months that pass before execution. Both sides can sell their part of the contract during this time so that they earn more money.

For example, let’s say that after a month, the wheat, which locked in at $10,000, is now valued at $30,000. If the manufacturer sells his side of the deal, he triples the money he put in, pocketing the difference. The trading happens because of the price changes that occur with the product as the contract is still on hold. And that’s the basic definition of trading futures.

An Introduction to the Broker

Futures trading allows you to profit from these contracts even if you are not a seller or manufacturer. You do so by using a broker. A broker is a separate entity that acts as an intermediary between a trader and security. They are a requirement as they are the ones approved to handle the orders on your behalf. Choosing the right broker will help you profit in trading, but we’ll discuss that in another post.

You buy and sell contracts through a broker. These brokers have online platforms that allow you to place trades. This platform will have a chart of the futures contract. You have the option to buy or sell with a simple press of a button. Their platform makes it easier to navigate and monitor your trades.

Brokers also have access to many contracts which you can trade, many of them dealing with all sorts of commodities, stocks, etc. Later on, you will learn how to choose the right contracts to trade to increase your chances of success. Stay tuned for more of our futures trader education posts.

Josh Martinez

Josh Martinez

Josh Martinez is an elite Analyst who’s been actively trading the financial markets since 2011. He’s known as one the leading innovative traders in this industry due to his his cutting-edge strategies.

Josh first burst into the scene when he took an initial deposit investment of $500 and turned into over $39,000 in just under 2 years.
Josh’s trading articles have been featured in Your Trading Edge, The FX Street, Trader Planet, Forex Crunch, Trading Pub, and Equities.com.

In addition to trading, Joshua has also trained thousands of traders worldwide. His strategies and systems have helped others find success in the market

Reader interactions

7 Replies to “Getting Started With Futures Trading”

  1. Charles Welty July 11, 2021 at 8:55 pm

    I was going to use td ameritrade but they limited me to very basic trading no futures or such how to I find a broker that will allow me to trade without them holding me back?

    Reply

    1. Traders Agency Analyst July 20, 2021 at 2:24 pm

      Hi Charles. All brokers are going to required you to sign a risk disclosure. Every broker is different, your best bet is to try to get a representative on the phone to see if you'll be able to work with the platform which they offer. It may just require a little due diligence to find the right broker.

      Reply

    2. michael gentile August 29, 2021 at 4:45 am

      What broker w est to use

      Reply

      1. Traders Agency Analyst Anthony Speciale August 30, 2021 at 8:19 am

        Hi Michael. Thanks so much for leaving us a comment. We strongly suggest you "test drive" several platforms to see what you're most comfortable trading on. Perhaps watching a few tutorials will be helpful and then trading in the simulated mode on your prospective platform would be the next step to take. I hope this help, Happy Trading!!!

        Reply

  2. TRAORE ABDOULAYE July 12, 2021 at 8:25 am

    JE REMERCIE TOUTES LES PERSONNES QUI M'AIDENT DANS MES RECHERCHES COMME MES CONSULTANTS.BIEN CORDIALEMENT.

    Reply

  3. Where do I go on trading view to find a broker.

    Reply

    1. Traders Agency Analyst Anthony Speciale November 19, 2021 at 12:20 pm

      Hi Renee, TradingView is not a brokerage. You can open an outside brokerage account and connect it to TradingView if they offer an interface with that particular brokerage. I hope this helps! Warm Regards & Happy Trading, Anthony Speciale

      Reply

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