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Online futures trading

As I mentioned in my introduction to this site,  I began my trading career in the futures market for various reasons, not least because the first course I ever attended was run by someone named Albert Labos, who taught me the rudiments of trading, and whose expertise lay in trading in futures. At the time I had very little experience, and was prepared to learn from someone who I thought would teach me how to trade, assuming ( incorrectly) that we would start with lower risk markets and then work up as my experience grew. With hindsight of course, this was probably the worst place to start for a novice such as myself, but having paid enormous fees to learn, and with no refunds available, I carried on and completed the course, and started trading in the ftse futures market. At the time there was no online futures trading platform available, and all orders were placed by telephone to the broker who then called the floor of the exchange to execute the order which was then confirmed as filled. At £10 per index point, the smallest trade size at the time, a 10 to 15 point move in the index could happen in seconds, and it was not uncommon to find your positions in profit or loss very quickly. All of this was made more stressful with telephone execution which delayed orders being filled, along with unstable price feeds and technology. Whilst the FTSE futures market was relatively slow, the S&P 500 futures were extremely fast moving and took a strong nerve to watch tiny movements translate into big losses or equally stressful, large profits. I soon learnt that this was a market that required  a much deeper understanding in order to be successful, and having learnt a great deal from the whole experience, moved back down the trading risk ladder and started to build my experience, trading in equities and options.

Online futures trading explained

To many traders, the futures market is one of the purest forms of online trading, and by that I mean that it represents a zero sum game, so that for every winner there is a loser, and for every loser there is a winner. Trading is conducted in a tightly regulated market with the central exchange matching buyers and sellers accordingly. It is important to realise from the outset that futures trading involves the trading of a contract, which has obligations and an expiry date, so unlike stocks and shares we are buying and selling instruments which expire at a particular time and date, and which have an underlying commitment for the holder of the contract. However, a futures contract can be bought or sold at any time within the life of the contract by simply placing a closing order which is the reverse of the opening position to ‘square off’ the trade, so if we had bought 1 ftse futures contract and wanted to close the position, then we would simply sell 1 ftse futures contract which effectively means we have a net position of o in the market.

The futures market is dominated by speculative traders, and whilst the futures market was originally developed for producers of real goods and commodities to hedge the prices of their goods against future price movements, the largest percetantge of futures trades are executed by speculators who may only hold contracts for hours, minutes, or even seconds. In order to maintain an even and regulated market, all futures contracts are specifiied in terms of the underlying commodity or goods, so for example a gold contract may specify the delivery of 100 ounces of 24 carat gold at a specificed time in the future. Most futures contracts are quoted on a quarterly basis and as one period expires, then the contract can either be rolled over into the next quarter, or left to expire. In the event of expiry then the contract either settles in cash or in physical delivery of the underlying goods.

The futures market is now increasingly available to the retail trader and the number of instruments to trade is extremely broad. Whilst many view futures trading as a high risk market, in fact it was originally developed as a way to hedge against future price changes, and used in this way is an excellent instrument and one I use frequently for hedging in the forex market, using futures contracts to hedge spot market positions. If you would like to learn more about online futures trading then simply follow the link here which will take you to another of my sites which explains this fascinating market in more detail.