Futures Trading Basics

Free Trading Courses

Do you have Futures trading basics down? Are you interested in learning how to trade this sector? One of the great things about Futures trading is hours they keep. If you work full time, you can trade Futures after hours. As a result, you can trade in the evening as well as early morning.

Futures Trading Basics and Where to Begin

  1. What is Futures trading?
  2. What are the trading contracts?
  3. The symbols for Futures trading
  4. Look at the choices you have
  5. Leverage and is it a good thing?

These are some futures trading basics to consider. Especially if you’re new to the game. Can you answer what are futures in the stock market? If not, you’re in luck.

What Are Futures?

Futures are an agreement made between two parties to buy on one side, and to sell on the other one of six different asset classes. For example, a commodity, product, or a financial instrument, like the stock market itself.

This agreement is conducted on a regulated futures exchange, can have either physical delivery or cash settlement, can be traded nearly around the clock, and because of their variety, allow for diversification of holdings. There are seven attributes that futures can share or differentiate them. Futures trading basics will help you understand futures attributes.

Futures Contracts

  • Contract Trades – Like stocks, futures are traded on an exchange. Futures markets are open 23½ hours per day, 5½  days a week. Each future has its own hours and can be easily traded nearly any hour of the day with good liquidity. Also known as futures trading basics.
  • Contract Size – Every futures contract has a size that’s standardized. The gold size is 100 troy ounces. The crude oil size is 1,000 barrels. Micro E S&P 500 future is $5 times the current price of the S&P 500 Index.
  • Contract Notional Value – The price when you take the size and multiply by the value. For a $1,200/oz gold price, its notional value is $120,000. If a barrel of oil is $85 then the notional value is $85,000. Let’s say the S&P is trading at $3,600. The Micro E S&P’s Future’s notional value will be $18,000. If the contract’s notional value is too rich for your blood, you can look for a smaller size. For example, there is a micro gold future with only 10 ounces; which would be $12,000.
  • The Contract’s Tick – Futures like stocks have a tick. This is a minimum increment for a price move. A stock has a $0.01 tick. Futures each have their own ticks. Gold has a tick of $0.10. Oil has a tick of $0.01. The S&P Micro E tick is $1.25(0.25 Index points). If you have the S&P micro and it rises four ticks(one index point), you’ve made $5 (less commissions and fees).

Futures Trading Attributes

  • Backed by an Asset – In the case of commodities, futures are backed by a physical asset, oil, corn, wheat, which is a building block for other things.  With financial futures, they are used for international trade and have an intrinsic value.
  • Settlement(financial or physical delivery)- All futures contracts have a delivery date.  They will either be a financial delivery, money in the form of cash, or a physical delivery for commodities like soybeans or corn.  These kinds of positions should be closed before the delivery date, and most trading platforms have ways to ensure this automatically.

How Do You Trade Futures?

If futures trading sounds like something you want to do, you should! Once you have the futures trading basics down, open an futures trading account. First, practice trading futures in there. Second, once you’ve successfully practiced traded, fund the account. Third, start out small. Then grow your position sizes.

Futures Trading Basics and Symbols of a Futures Contract

Each futures contract will have a specific expiration date. Therefore, futures symbols are different from the symbols of other asset classes.

  • Depending on the trading platform, there will be a slash “/” or dash”-” identifying that it is a future.
  • Next is a 2 character code called the “root symbol” to identify the particular future.
  • Next the expiration date of the contract is included within the product symbol.  A trade will have a month code, these can be confusing as “F” is not February, and “M” is not March or May; therefore, know them so that you don’t make a costly mistake:
  • F = January
  • G = February
  • H = March
  • J = April
  • K = May
  • M= June
  • N = July
  • Q = August
  • U = September
  • V = October
  • X = November
  • Z = December
  • Finally, the expiration year is included as a 2 digit number as the last 2 digits of the calendar year

For example, the S&P 500 E-Mini expiring Dec ’20 will look like this /ESZ20. We hope this helps with futures trading basics.

Trading Choices

Trading futures allows for the diversification of assets in a simple way. They’re a relatively short term guess on what will happen to a particular asset. That may be a good option for reducing your exposure in a different asset or asset class.

Equity futures are a popular way of trading because you can trade on the future of a country’s economy. In betting on the U.S.’s economy, there are various notional value futures for the S&P 500, the Nasdaq, and the Russell 2000; depending on how much you wish to risk.

Mastering futures trading basics will help you with day trading futures like the pros. In the end, that’s the goal right?

Note on Leveraged Trading

Trading on margin is a way to add leverage to a futures trade to gain a higher return. However, you are also risking more with small price changes.

The capital required to enter a position in a future is usually between 3% and 12%. This way, you could potentially buy $120,000 in gold futures for only $3,600.

If the price goes up, then you can double your money easily. But small decreases can signal a margin call that you will have to cover and could potentially wipe you out.

Be very careful with any leveraged trading; never get in over your head. That’s easy to do. Especially if you don’t master futures trading basics.

Summary

Futures trading basics can be an exciting way to diversify holdings. Margin trading of futures can increase your gains but also put you at higher risk.

As with all trading, make sure you know your limits and buy/sell with a plan, not just on instinct or gut feel. Good luck with all your trades!!!!

Bullish Bears Sidebar

Free Trading Courses

  • We want to teach you
  • Learn day trading, swing trading, options, futures, and price action
  • Rated Best Value Courses by Investopedia

FREE ONLINE TRADING COURSES

If you’ve looked for trading education elsewhere then you’ll notice that it can be very costly.

We are opposed to charging ridiculous amounts to access experience and quality information. 

That being said, our website is a great resource for traders or investors of all levels to learn about day trading stocks, futures, and options. Swing trading too! 

On our site, you will find thousands of dollars worth of free online trading courses, tutorials, and reviews.

We put all of the tools available to traders to the test and give you first-hand experience in stock trading you won’t find elsewhere.

Our content is packed with the essential knowledge that’s needed to help you to become a successful trader.

It’s important to treat day trading stocks, options, futures, and swing trading like you would with getting a professional degree, a new trade, or starting any new career.

Invest the proper time into your Trading Education and don’t try to run before you learn to crawl. Trading stocks is not a get-rich-quick scheme. It’s not gambling either, though there are people who treat it this way. Don’t be that person! 

STOCK TRADING COURSES FOR BEGINNERS

The Bullish Bears team focuses on keeping things as simple as possible in our online trading courses and chat rooms. We provide our members with courses of all different trading levels and topics.

If you’re a beginner, intermediate level, or looking for expert trading knowledge…we’ve got you covered. 

We have a basic stock trading course, swing trading course, 2 day trading courses, 2 options courses, 2 candlesticks courses, and broker courses to help you get started. Free.

Just choose the course level that you’re most interested in and get started on the right path now. Become a leader, not a follower. When you’re ready you can join our chat rooms and access our Next Level training library. No rush. We’re here to help.

Click Here to take our free courses.