Futures Trading Guide

What is Futures Trading?

Futures trading involves the buying and selling standardized contracts that commit to the future delivery of a commodity, financial instrument, or other asset at an agreed-upon price. These contracts represent an obligation to buy or sell the asset at a specific price on a predetermined future date, allowing traders to hedge against risks and speculate on the price movements of the underlying assets.

Why Trade Futures?

Trading futures has many advantages wich include, No Shorting Restrictions Or Day Trading Rules, Increased Leverage, Flexible Trade Sizing, 24-Hour Trading (Virtual), Tax Advantages, Fair And Transparent Pricing, Diverse And Uncorrelated Markets, and a Mature Industry.

• Taking a short position is straightforward, as any futures contract can be shorted.
• Any trader can access the futures markets thanks to the variety of contract sizes available. Micro futures, which are 1/10th the size of a standard E-mini futures contract, enable new traders to start with less capital and potentially lower their risk.
• Using leverage allows you to control a larger trading position with less capital, meaning you can manage sizable trades with a smaller account balance.
• The Futures market is open nearly 24 hours a day, and six days a week.
• In futures trading, it's just you versus the market and all traders have equal access to the same prices and opportunities to place orders and have them filled.

Requirements to Trade Futures

To trade futures, you'll need a combination of resources, accounts, and knowledge, you can start by finding a brokerage that specializes in futures trading, as not all stock brokers offer it. Make sure they’re registered with the Commodity Futures Trading Commission (CFTC).

You can open a NinjaTrader account with just a few hundred dollars, as there’s no minimum funding requirement. This allows you to start trading any available Micro futures contracts right away.

Understand the basics of futures trading and get familiar with key terms like "long," "short," "margin," and "leverage," as well as different order types and contract details.

Educate yourself and study market dynamics, trading psychology, and backtesting strategies. NinjaTrader offers demo accounts, this allows you to practice trading futures in a simulated environment, helping you learn without risking real money.

Disadvantage of Trading Futures

Trading futures can be rewarding, but it also comes with several disadvantages that traders should consider like a high leveraged, meaning you control large amounts of an asset with a relatively small amount of capital. Also, if the market moves against you, you might receive a margin call and be required to deposit additional funds or risk having your position closed at a loss.

Futures trading is best suited for experienced traders who comprehend the associated risks and can manage them effectively. However, due to the possibility of significant losses, it may not be suitable for everyone.