• This course introduces futures trading for beginners and covers the exciting world of futures contracts. These are financial agreements that oblige their buyers or sellers to sell/acquire an underlying asset, such as commodities, securities, or other financial instruments, at an agreed-upon price on a specific future date. Futures trading can be leveraged on individual stocks or indices, such as the S&P 500.  

• In April 2020, volumes of ASX24 trading changed dramatically from January 2020 through May 2024, trades peaked at 24 million in March 2020. Advanced technologies and far-reaching approaches seem to be today reframing the market into one of AI-based trend following, volatility harvesting, and real-time news analysis. With this kind of innovation and features now coupled with modern trading platforms, new traders need to familiarize themselves with all these nuances in order to be effective while trading futures. 

What is future trading for beginners? 

• In general, futures trading is when two parties agree to buy or sell an asset at an already predetermined price and future date. In other words, such contracts can be based on stock market indices, bonds, commodities such as gold and crude oil, among others. 

• Trades take place in centralized exchanges, which facilitate the integrity of the transaction. Here, one can take a long position, where he buys the contract in hopes that the price of the underlying asset will rise, or a short position, whereby he sells the contract on expectations that the price of that asset will fall. In view of this, the motive of trading in futures is to gain from the difference between the price of the contract and the market price of that asset at the expiry date. It is through the speculation of these price movements that traders try to gain an advantage through their predictions in the future market trends. 

What is a future contract? 

• A futures contract is a type of standardized agreement traded on an exchange between buyer and seller, outlining a transaction for a particular financial instrument or physical commodity to take place at a set price on a set date in the future. The contracts have uniform conditions and terms so that they become consistent and hence tradable. 

• The two general ways of settling a futures contract include cash settlement and physical delivery. In the case of a cash settlement, money is paid corresponding to the difference between the contract and market prices at expiration. However, there’s physical delivery, which means transferring the underlying commodity in adherence to the rules and specifications set by the exchange.  

• In the electronic futures market today, centralized execution and clearing at a regulated exchange provide transparency and integrity. A prerequisite for buyers and sellers to make investment decisions and position risk during a trading session is real-time price and order information disclosure. 

Advantages of future trading for beginners 

Flexible trade sizing 

• Among the many benefits of futures trading for beginners is the advantage of flexible trade sizing. What makes it very suitable for traders of all experience is the flexibility provided, coupled with the availability of different sizes of contracts. Thus, it accommodates both the risk tolerance and financial ability of the beginners. This manages and limits the exposure to a financial breakdown. In this case, new traders will start with small positions and gradually increase their stake with experience and confidence in the market. 

Diverse market opportunities 

• One major reason that future trading is good for beginners is that it exposes one to a diversity of markets linked to the way the world’s economy works with so much ease. With this, new traders will have the capacity to trade and enter into quite a number of markets like all essential commodities, such as oil, gold, and agricultural products, which may not be possible to be directly traded easily. The diversity in this market offers a beginner the opportunity to interact with various economic sectors and hedge against the volatility of the markets in creating multiple opportunities to effectively build up and diversify their portfolios. 

Virtual 24-hour trading 

• Probably one of the greatest advantages of trading in futures for a beginner is that it is available throughout the day and night. While traditional stock markets have fixed hours of trading, the futures markets are open almost 24 hours a day, six days a week. As a new trader, one can react immediately to any kind of event or market movement happening somewhere in the world at any time. This extended trading window brings flexibility and convenience into running trades after regular stock market hours. 

Tax advantages 

• Futures trading for beginners offers some prospective tax benefits that can prove very beneficial in such matters. In general, gains on futures contracts are split between long-term and short-term capital gains, depending on how they are held. This differentiation can make this kind of trading more desirable tax-wise compared to short-term stock trading, which is normally taxed at higher rates. With this knowledge, therefore, new traders can trade in an informed manner and possibly enhance the overall returns. 

Essentials for futures trading for beginners 

Understanding of futures trading 

• Futures trading involves the selling and buying of a standardized contract that binds the buyer to purchase, and the seller to deliver, some assets at an agreed-upon price on a future date. In principle, such a contract can be made based on almost any underlying asset, such as commodities like oil or gold, financial instruments like a stock index, or even a currency. These contracts trade on regulated exchanges, which standardize terms and provide liquidity. Used either to hedge against prices or to speculate on prices in the future, futures trading presents huge opportunities for both risk management and profit potential. 

Key components of future trading 

Futures contracts 

• Futures contracts are therefore standardized agreements traded on exchanges. The latter defines the terms of the trade. Each contract specifies the quantity and quality of the underlying, the method of settlement cash or through physical delivery and the expiration date. By doing so, standardization secures consistency and promotes trading. 

Leverage 

• It means gaining a lot of positions with less capital through margin in futures trading. For example, $20,000 of a futures contract can have a $1,000 margin to back it. Although this leverage may give an amplified gain, it is equally putting one at greater risk since the losses can far exceed the principal investment if the market goes against one’s position. One should therefore apply leverage with a lot of caution to avoid gigantic financial losses. 

Market hours 

• The futures markets are nearly open 24 hours a day, five days a week, and so provide traders with the opportunity to react to any event occurring in the world or in the markets at any moment. This is additional time, hence extended flexibility, allowing one to create opportunities in changing prices. Knowing when it is the best time to trade and how action varies throughout the day can help improve trading strategies and yield profits. 

Risks and considerations 

Market volatility 

• Futures prices are known to be very volatile and can be moved by a variety of events, from economic reports to geopolitical events and market sentiment. This volatility may result in very fast and sharp changes in prices that may impact the outcome of trade. A trader should always be prepared for such fast changes and equipped with ways of controlling and reducing one’s risks amid high market volatility. Being abreast of the events taking place around the world and knowledge of the present conditions of the market help protect one’s trading account via appropriate trading decisions taken on time. 

Margin calls 

• In futures trading, a margin call is an event in which the market moves against a trader’s position. That is, when losses incurred reduce the equity in an account below the required level of margin, the trader must deposit more money into their margin account to keep the position. Understanding how margin and margin calls work is part of risk management. Traders must therefore be aware of their margin requirements and always maintain sufficient funds to cover possible margin calls, avoiding forced liquidation of any open positions. 

Expiration dates 

• Every futures contract has an expiration date, which means it must be settled before the expiration date. Traders close out positions before this date, or they are ready to accept delivery according to contract specifications. Taking physical delivery is mostly impractical and undesirable for most traders. Thus, keeping track of the expiration date by closing positions in a timely manner is important to avoid undesired results and ensure smooth trading operations. 

Conclusion 

• There are many opportunities for a novice to be engaged in futures trading on dynamic and very profitable markets. At Thaurus, we help new traders at all steps from account opening to advanced trading strategies. We provide a full package of services with all the necessary tools and resources that ensure the most accurate trading and better management of the risks: stop-loss limits, economic calendars, and margin calculator. At the core of our platform lies the power and support that enables even beginners to confidently, skillfully trade futures. 

• Contact us to know more about future trading for beginners and our team will revert back in 24 hours.