Despite having a lot of benefits, futures trading can be risky. However, the risk can be reduced by choosing the right broker for futures trading.
While some traders prefer to trade more conventional assets like stocks and commodities, others might have a different preference like futures. Futures trading is a derivatives financial contract where the participating parties agreed to buy or sell specific assets at a set future date for a set price. A futures contract or futures trading involves both a buyer and a seller. When the contract expires, the buyer is obligated to buy and receive the underlying assets. Meanwhile, the seller must provide and deliver the underlying assets. This process will be facilitated by brokers for futures trading since not all brokerages have this product.
What You Need to Know About Futures
Just like other types of trading, the profit and loss in futures contracts are unlimited. In both cases, traders still have to deal with the effect of daily price swings and market volatility. Despite the risks, futures trading is considered one of the best ways to gain profits from the markets. In fact, most retail traders and portfolio managers are involved in futures trading. The contracts are available for most popular assets like crude oil, gas, and wheat, stock index, currencies, precious metals, bonds, and even cryptocurrencies like Bitcoin.
A lot of traders often confuse futures with options. In reality, they have some underlying differences. An option contract gives traders the rights but not the obligations to buy or sell an instrument at a specific price, as long as the contract is in effect. With a futures contract, traders must buy or sell the instruments on a specific date that has been agreed unless the position is closed before the expiration date. Futures involve maximum liability for the buyer and seller because when the underlying asset price moves, both parties must deposit more money into their trading account to fulfill the obligations.
Futures has a lot of risks, but why do a lot of traders use them? As it turns out, a futures contract has different benefits.
1. For Speculations
A lot of traders use futures contracts for market speculations. The speculators usually analyze the market and predict the future price movement as best as they can in order to gain profits from it. For example, if they bought a futures contract and the price of the instrument rose and they were trading above the original price at the expiration, they will receive profits. The speculators can also take a sell speculative positions. In this case, they will receive profits if they predict the price of the underlying asset to fall. The net differences will be settled at the expiration of the contract. Normally, speculators will use any kind of analysis, be it technical or fundamental. Another way to speculate about the market price is spread betting.
2. For Hedging
Futures can be used to hedge the price movement of an underlying asset. The main idea is similar to regular hedging, which is to prevent losses from potential loss due to unforeseen circumstances. Hedging with futures is actually very popular among companies. For example, a cocoa company could hedge by opening sell positions in futures contracts. This way, they can reduce the risk of cocoa's price decrease.
Where to Trader Futures Online?
Unfortunately, not all brokers provided this product for online trading. In order to get the best condition to trade futures contracts, traders should find a well-regulated broker. Here are some of the best brokers for futures trading available in the market.
1. IC Markets
IC Markets is one of the best forex CFD providers that offers trading solutions for all kinds of traders. There are 4 global futures available to be traded in IC Markets: ICE Dollar Index Futures, CBOE VIX Index Futures, Brent Crude Oil Futures, and WTI Crude Oil Futures. There is no commission fee for futures CFD trading in IC Markets. This broker offers competitive spreads across all of their future CFDs that traders can enjoy through MetaTrader 4 and 5.
For traders who are interested in these products, there are several things to be considered. First of all, IC Market's futures CFDs are set to expire one day before the contract. When the contract expires, all open positions will be closed at the futures settlement price. This usually takes place on the day following the expiry. Second of all, the position is not rolled to the next month. Therefore, traders who want to hold long-term positions should re-enter on the next available contract. The information regarding contracts and their expiry dates can be seen on IC Market's official website.
IC Markets is an online forex broker operating under the company of International Capital Markets Pty Ltd. Traders under the Australian jurisdiction are provided with the trading service of IC Markets AU that is headquartered in Australia and licensed by the Australian Securities and Investments Commission (ASIC).
On the other hand, non-Australian traders who open an account in this broker are registered under IC Markets SEY that is based in Seychelles, and regulated under the Seychelles Financial Services Authority (SFSA). The dual operation is a result of the relatively new rules from ASIC that prohibit their regulated broker to offer trading services outside Australia.
Classified as an ECN broker, IC Markets provide clients with MetaTrader 4, MetaTrader 5, cTrader as platform trading options. This broker also follows market trends to include Cryptocurrencies as one of its products, enriching its already wide selection of trading assets that include Currencies, Indices, Metals, Energies, Softs, Stocks, as well as Bonds.
The minimum deposit in IC Markets is in the middle range compared to other ASIC-regulated brokers, as it reaches $200 for every client. Market analysis materials are also prepared regularly for trading insights on IC Markets's official website, proving their competence to serve their traders with important contents created by market experts that work specifically for them.
For payment methods, IC Markets allows funding and withdrawal via wire transfer, credit card, PayPal, Skrill, Neteller, FasaPay, UnionPay, as well as Bitcoin via BitPay. The more interesting aspect from this broker is its multi-base currencies that include USD, AUD, EUR, GBP, SGD, NZD, JPY, CHF, HKD, and CAD.
As the trading technology in IC Markets is highly equipped with co-located servers and extremely low latency (especially on cTrader), the broker is widely known for its capability in hosting traders with the special needs for high-frequency trading as well as scalping.
To sum up, IC Markets is a fitting destination for active traders looking for a well-regulated broker. IC Markets is also flexible in terms of base currency and payment methods, signaling their commitment to welcome traders beyond their home country. As of late 2019, IC Markets provided their website in 18 international languages including English, Korean, Indonesian, French, Spanish, Italian, Malay, German, and Chinese.
2. Interactive Brokers
Interactive Brokers is one of the best brokers for futures trading. Although this brokerage charges a commission fee for futures trading, the amount is lower than others. Interactive Brokers' commissions start from $0.25 to $0.85 per contract. Traders can trade futures globally on 30+ market centers in their proprietary trading platforms. The futures offered range from agriculture, cryptocurrency, currencies, energy, volatility indices, and many more. It also comes with different kinds of order types and futures tools to make sure clients have the best trading condition. In fact, there are more than 100 order types from limit orders to complex algorithmic trading for better trading execution.
Interactive Brokers is a direct market access broker that provides execution, clearance, settlement, and prime brokerage for customers. Since it was found 41 years ago by Thomas Peterffy, the company has grown internally to become one of the premier securities firms with over $7 billion in equity capital.
First acknowledged as a popular broker for advanced traders, Interactive Brokers launched a second tier of service called IBKR Lite for more casual investors in 2019.
The IBKR Lite provides services on over 125 market destinations worldwide and gives direct access (online) trade execution and clearing services, both to institutional and professional traders for a wide variety of traded products including stocks, options, futures, forex, fixed income, and funds worldwide. Interactive Brokers Group and its affiliates execute over 859,000 trades per day.
Headquartered in Greenwich, Connecticut, Interactive Brokers has over 1,400 employees in the USA, Switzerland, Canada, Hong Kong, UK, Australia, Hungary, Russia, Japan, India, China, and Estonia companies. IBKR is regulated by the Securities and Exchange Commission (SEC), the Financial Industry Regulatory Authority (FINRA), the Financial Conduct Authority (FCA), and is registered in the New York Stoch Exchange (NYSE).
Interactive Brokers offers a wide range of product-centered tools like the OptionTrader and Probability Lab for simplified single and complex multi-leg option trading; FXTrader for forex trading, Mutual Fund/ETF Replicator for helping traders find a lower cost on ETF alternatives, also fixed-income screeners for corporate and agency bonds. Overall, trading with Interactive Brokers would be provided with the most useful and updated tools to maximize trading and investing goals.
As a popular and regulated broker in the US, Interactive Brokers has won some awards. Recently, they were awarded by the Barrons as the 2019 Best Online Broker, which is categorized as the best broker for mobile, international, and frequent traders. Besides, they also won an award as Top Performing Broker by the Preqin Service Providers, and Best Overall Broker by Investopedia (Best for Low Costs, Best for International Trading, Best for Options Trading, Best for Day Trading, and Best for Penny Stocks). The awards are not only achieved during 2019. Since 2005, Interactive Brokers has won lots of awards regarding its best services for clients.
To optimize clients' trading speed and efficiency, Interactive Brokers provides some powerful suites of trading platforms. Below is the list:
- Client Portal
A one-stop destination to check quotes and place trades, see account balances, Profit and Loss, as well as key performance metrics, funding, and reporting.
- Desktop TWS
A flagship platform designed for active traders and investors who trade multiple products and require power and flexibility. Opening an account in Interactive Brokers and using this platform allows traders to utilize the most advanced algorithms and trading tools, as well as a library of tools and asset-based trading layouts for optimum customization.
- IBKR TWS for Mobile
The IBKR TWS for Mobile is made for traders who want to easily trade and monitor their IBKR account on-the-go from either iOS or Android device (tablet or smartphone).
IBoT is a robot for finding information and placing orders using clients' own words. IBot is available on TWS for Desktop, IBKR Mobile, and Client Portal.
- IBKR WebTrader
IBKR WebTrader is made for traders and investors who prefer a simplified interface.
- IBKR APIs or IBKR Pro
This trading platform is provided especially for traders and investors who want to write their trading software or automated trading programs; third-party software users.
Overall, Interactive Brokers has always been a great choice for those who want to find out a credible and regulated broker for trading. Offering lots of trading platforms, Interactive Brokers has committed to provide their best services for both novices and professionals, since it is suited to every clients' needs.
Forex.com allows traders to diversify their assets through Small Exchanges to trade futures. The Small Exchanges is a Chicago-based futures exchange that was officially launched on June 1, 2020. It offers standardized futures products that are small, standard, and simple across indices. The products are made from some of the most traded and liquid underlying assets. Forex.com applies uniform pricing for futures, which means all the instruments move in 0.01 increments equal to $1. There are about 75 index traders can get their hands on. Please remember that the contract is expired on the third Friday of the month.
FOREX, also known as FOREX.com, is one of the global market leaders in the financial industry. Established in 2001, FOREX is a part of Gain Capital Holdings specifically meant for FX & CFD trading on powerful trading platforms and the popular MetaTrader 4.
Similar to its parent company, FOREX has been licensed by various financial watchdogs, including the Commodity Futures Trading Commission (CFTC) and the National Futures Association (NFA) from the US, the Financial Conduct Authority (FCA) from the UK, the Investment Industry Regulatory Organisation from Canada, as well as the Financial Services Agency from Japan.
For traders in South East Asia and the Middle East area, FOREX has been operating under the regulation of the Cayman Islands Monetary Authority.
Quality execution on every trade, transparency, and competitive pricing are some of the most optimized services in FOREX.com. As per Q3 2019, the broker's total assets reached $1.288 billion and the total customer equity amounted up to $849.8 million.
FOREX presents its clients with the best freedom to trade in 300+ global markets including 80+ FX pairs, 220+ shares, indices, commodities, and cryptocurrencies. Spreads on each asset are displayed live on FOREX.com's official website, with EUR/USD having a spread as low as 0.8 pips.
For the trading platform, FOREX provides two major options: its in-house platform and MetaTrader 4. Both types are available on various devices and can be accessed as a web-based platform and mobile app. Furthermore, FOREX's proprietary platform is furnished with advanced charting tools like 70+ technical indicators, a host of time intervals, multiple chart types, 50+ drawing tools, and customization features.
Trading in FOREX.com is provided with various trading conditions that accommodate the needs of multiple types of traders. Apart from the services, FOREX also provides guidance and supports in the forms of real-time trade signals and analysis tools from Autochartist and Recognia. There are also trained market strategists to work with on developing a trading plan, as well as market analysis to keep clients Stay informed with real-time market insights and actionable trade ideas from FOREX's research team.
Account funding and withdrawal are enabled via bank transfer. However, there are no further details on the minimum amount of each process. FOREX also does not seem to present other options for payment methods like credit cards or even e-payment.
Generally, FOREX is a reliable FX and CFD broker based on its regulations and long-standing history since 2001. Clients can trade in either FOREX's platform or MetaTrader 4 with competitive spread and pricing. Still, FOREX is one of the top-tiers in the brokerage industry that adheres to strict regulations of prestigious financial regulators.
Some of its trading conditions may not suitable for retail traders with barely enough experience or small capitals. Despite it all, FOREX.com hosts one of the most accomplished material packages when it comes to financial trading.
To start with, this broker has 8 asset classes with 16 trading platforms. That includes forex, cryptocurrencies, individual stocks, commodities, precious metals, and many more. XM also grants their traders instant exposure to speculate on future market movements. The best part is, XM doesn't charge exchange fees for these products. Information about trading hours and active contracts can be seen on their official website.
Established in 2009, XM is a member of an online brokerage company called Trading Point of Financial Instruments Ltd. In providing clients on a global scale, the company has branched into XM Australia and XM Global, and XM Cyprus. Each member has different headquarters and licenses, with XM Australia registered under the Australian Securities and Investment Commission (reference number: 443670), XM Global under the IFSC (60/354/TS/19), and XM Cyprus under the Cyprus Securities and Exchange Commission (reference number: 120/10).
XM is one of the more experienced brokers in the world of online forex trading today. Since its founding, the broker has experienced a lot of changes, including the addition of the Ultra-Low Account and Webinar feature that is accommodated in 19 different languages with 35 native instructors for each language.
In terms of trading instruments, XM is a well-known diverse class assets provider, varying from Forex, Commodities, Equity Indices in CFDs, Precious Metals, Energies, to Shares. XM prides itself to be the ideal broker in trading execution, offering a stat of 99.35% orders to be executed in less than 1 second. Trading in XM would be also provided with a strict no requotes policy, no virtual dealer plug-in, no rejection of orders, real-time market execution, and the choice for traders to place orders online or by phone.
Spreads on all majors can reach as low as 0.6 pips in Ultra-Low Account, while spreads on other accounts usually start from 1 pip. Instead of providing maximum leverage on the scale of 1:500 or 1:1000 (round numbers), XM chooses to limit their leverage on a 1:888 scale, a unique number that is now widely recognized as XM's trademark.
To protect the client's fund in the event of extreme volatility, XM presents each account type with Negative Balance Protection. The deposit starts from $5 in Micro and Standard Account, while Ultra-Low Account requires a minimum deposit of $50. Traders who open accounts in XM are enabled a condition similar to a Cent Account environment in the Micro Account, in which the Contract Size for every lot is only 1,000 units. If it is applied with the smallest lot size in the MetaTrader platform which amounts to 0.01, it means that traders can go as small as 10 units per trade.
For the deposit, XM applies zero-fee deposits in most of its available payment methods. Traders can choose to fund or withdraw their accounts via wire transfer, credit card, as well as the most favorable e-payment choices like Skrill, Neteller, and FasaPay.
XM also provides an Islamic Account for Muslim Traders obligated to Sharia Law that prohibits the use of interest generated by overnight swaps for each currency pairs. To give their clients the best experiment in trading, XM has given access to both MT4 and MT5 platforms, each is available for more than 6 display formats (PC, Mac, Multiterminal, WebTrader, iPad, iPhone, Android, and Android Tablet).
All in all, there is no doubt that XM has gone global with its deep commitment to providing trading services in more than 15 languages around the world. Aside from easing traders' experience with mainstream trading platforms and high-quality trading execution, XM is open to various types of traders, from small capital traders to the more experienced ones with big deposits at the ready. Traders are even provided with a Cent Trading environment should they choose to register under Micro Account.
5. TD Ameritrade
There are several reasons why TD Ameritrade is the best broker for futures trading. First of all, they allow trading over 70 futures products virtually 24 hours a day, 6 days a week. This can be done through Charles Schwab Futures and Forex LLC. Traders can also access powerful platforms, technical studies, education support, and PaperMoney to practice before jumping into the real thing. They can diversify portfolios with micro futures, including Micro WTI Crude Oil futures, Micro Bitcoin futures, E-mini Index futures, and many more.
Pros and Cons
Before choosing which broker for futures trading to choose, traders should consider the good and the bad side of this product. There are plenty of benefits offered by trading futures contracts, but that doesn't mean that futures don't come with their own risks.
With futures, traders can speculate the price on the direction of an underlying asset. It also allows companies and retail traders to hedge against a price drop in the market. As futures are a leveraged product, traders can reduce trading costs and maximize profits.
On the other hand, traders will be exposed to the risk of loss if the price swings against their direction. For hedgers, they might miss out on a maximum gain because of the opposing contracts they have to hold. While margin and leverage in futures can help traders to double their trading power, it can also become a double-edged sword. So, make sure to understand these risks before trading futures.
Cryptocurrencies like Bitcoin can also be sold as a derivative asset in futures and options markets. There are a lot of benefits in trading Bitcoin futures, so how do you trade them?