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How to Trade Futures?

2024-02-23 17:57

Abstract:   Entering the field of futures trading, novice traders need to systematically master the operation mechanism of the futures market, the characteristics of different futures varieties and the corresponding trading rules, and it is crucial to have a deep understanding of the margin system, the core risk control means, and learn how to properly use leverage.

Entering the field of futures trading, novice traders need to systematically master the operation mechanism of the futures market, the characteristics of different futures varieties and the corresponding trading rules, and it is crucial to have a deep understanding of the margin system, the core risk control means, and learn how to properly use leverage.

What is the Futures Market?

A futures market is a part of the financial market that allows parties to centrally buy and sell standardized futures contracts. A futures contract is a legally binding agreement that specifies that on a certain date in the future (the delivery date), the buyer must receive from the seller, or the seller must deliver to the buyer a specific quantity and quality of a commodity (e.g. agricultural products, metals, energy products) or financial instrument (e.g. stock index, interest rate, foreign exchange). The key elements of a futures contract include the contract specification, the delivery date, the delivery place, and the pre-determined price (the futures price).

Online trading and investing have become mainstream forms in the futures market, which has greatly changed the way investors participate in futures trading.In futures markets, buyers and sellers do not trade directly for immediate delivery of physical commodities or to fulfill financial obligations, but for risk management, speculation or hedging purposes. Futures market prices reflect changes in market expectations for future commodity or financial asset prices. In addition, the futures market also has a margin system, which means that participants only need to pay a part of the total value of the contract as security, which improves the efficiency of the use of funds but also increases the potential risk.

Futures exchanges are the core entities of futures market trading, providing trading platforms, setting trading rules, monitoring market behavior, and guaranteeing the fulfillment of contracts through futures clearing institutions. Futures markets play an important role in the global economy, helping businesses and individuals manage risk, discover prices, and improve market efficiency.

What is the Futures Market?

Trading Rules for Futures

The Futures Trading rules are a set of standards and procedures that guide futures market participants to trade, and here are some of the key rules for futures trading:

  • Contract standardization

  • Futures contracts are uniformly formulated by the exchange, including trading varieties, quantity, quality standards, delivery time and place, etc., to ensure that all contracts are consistent and negotiable.

    • Margin system

    • When opening a position to buy or sell a futures contract, investors are required to pay a margin in accordance with the proportion specified by the exchange. Margin is the fund guarantee for investors to bear the risk of default, which makes futures trading have leverage effect and magnifies the profit and loss.

      • Two-way trade

      • In the futures market, investors can either go long (buy a futures contract expecting the price to rise) or short (sell a futures contract expecting the price to fall).

        • T+0 transaction

        • The futures market operates on a T+0 trading mechanism, meaning that contracts bought on the day can be sold the same day without waiting for the next day to close.

          • No liability settlement on the same day

          • After the end of each trading day, the exchange will mark the positions of members and customers on a daily basis according to the settlement price of the day, calculate profits and losses, and adjust the corresponding margin to ensure that market risks are released in a timely manner.

            • Ceiling system

            • Exchanges typically set daily limits on how much futures contracts can rise or fall, beyond which they can no longer be traded, to prevent excessive speculation from causing wild swings in the market.

              • Delivery rules

              • When the contract delivery month is reached, qualified investors can choose physical delivery or cash settlement, and speculators who are not ready to deliver must close their positions before then.

                • Forced closing

                • When the balance of the investor's margin account falls below the level of the maintenance margin, the exchange or brokerage firm has the right to force the liquidation of its positions to avoid further losses.

                  • Information disclosure and reporting system

                  • Futures trading involves strict information disclosure, open and transparent trading data, and market participants need to comply with relevant reporting and record-keeping regulations.

                    • Market entry and exit

                    • Participation in futures trading needs to go through the procedures of account opening review, risk assessment, etc., before meeting the conditions to enter the market, exit the market also needs to be implemented in accordance with relevant regulations.

                      Trading Rules for Futures

                      Futures Trading Variety

                      Futures are traded in a wide range of commodities, financial instruments and other derivatives. Here are some of the main futures trading categories and their representative contracts:

                      • Agricultural futures: Soybeans, corn, wheat, rice, cotton, sugar, coffee, orange juice, pigs, live cattle, eggs, wood, etc.

                      • Energy Futures: Crude oil (WTI crude oil, Brent crude oil), gasoline, diesel, heating oil, natural gas, coal, electricity, etc.

                      • Metal Futures: Copper, aluminum, zinc, lead, nickel, tin, gold, silver, palladium, platinum, etc.

                      • Precious Metals Futures: Gold, silver, platinum (platinum), palladium, etc.

                      • Industrial Metal Futures: Copper, aluminum, zinc, lead, nickel, tin, etc.

                      • Soft Commodity futures: Coffee, sugar, cocoa, cotton, rubber, etc.

                      • Foreign Exchange Futures: Major currency pairs, such as USD index, EUR/USD, GBP/USD, JPY/USD, etc.

                      • Stock Index futures: S&P500 Index, NASDAQ 100 Index, Dow Jones Industrial Average (DJIA), Shanghai 50 Index, CSI 300 Index, Hang Seng Index, FTSE 100 Index, etc.

                      • Interest rate futures: Treasury bond futures, Eurodollar futures, short-term interest rate futures (such as LIBOR), bond futures, etc.

                      • Credit Derivatives Futures: CDS index futures, sovereign debt futures, etc.

                      • Environmental Futures: Greenhouse gas emission rights (carbon emission quotas), weather futures, etc.

                      All these futures commodities can be traded and invested online.

                      Trading Time and Place

                      • Chicago Mercantile Exchange Group (CME Group) Location: Chicago, Illinois

                      Trading Hours:

                      Including the Chicago Board of Trade (CBOT), the Chicago Mercantile Exchange (CME) and the New York Mercantile Exchange (NYMEX)

                      Daily trading hours: Sunday to Friday, 6:00am - 5:00pm GMT (5:00am - 4:00pm DST)

                      Night trading hours: Electronic trading is available around the clock, covering Asian, European and North American trading hours

                      • London Metal Exchange (LME) Location: London, United Kingdom

                      Trading Hours:

                      Telephone trading hours: Monday to Friday, 8:00am - 12:00pm, 12:30pm -19:00 UK time

                      Electronic trading hours: 24 hours a day

                      • Eurex Location: Frankfurt, Germany

                      Trading Hours:

                      Daily trading hours: Monday to Friday, 8:00 am -22:00 CET

                      Some contracts have electronic trading hours at night

                      • Singapore Exchange (SGX) Location: Singapore

                      Trading Hours:

                      Daily trading hours: Monday to Friday, 9:00am - 5:00pm Singapore time

                      Some futures products have electronic trading hours covering other Asian trading hours

                      • Australian Securities Exchange (ASX) Location: Sydney, Australia

                      Trading Hours:

                      Futures trading hours: Monday to Friday, 7:00am - 6:10pm Australian Eastern Standard Time

                      Futures Exchange Location Day Trading Hours Night/Electronic Trading
                      CME Group Chicago, USA US Central Time 6:00-17:00 24-hour trading
                      LME London, UK Phone Trading: UK Time 8:00-19:00 24-hour trading
                      Eurex Frankfurt, Germany Central European Time 8:00-22:00 Partial night trading
                      SGX Singapore Singapore Time 9:00-17:00 Partial Asian hours
                      ASX Sydney, Australia Australian Eastern Time 7:00-18:10 -

                      Margin System

                      The futures margin system is an important risk management mechanism for futures market trading. It means that the participants of futures trading must deposit a certain amount of money to their brokers or clearing institutions as a guarantee in accordance with the regulations of futures exchanges or relevant regulatory authorities when trading futures contracts. This amount is usually a percentage of the face value of the futures contract and is used to ensure the trader's ability to perform and cover potential market risk.

                      Futures margin includes but is not limited to the following aspects:

                      • Initial Margin: The minimum amount of margin that must be paid when opening a position, which is usually around 5% to 15% of the contract value, and the specific ratio is dynamically adjusted by the exchange based on market risk conditions.

                      • Maintenance Margin: During the period of holding a futures position, if market price fluctuations cause the initial margin to be insufficient to cover potential losses, the exchange will set a maintenance margin level, when the margin account balance falls below this level, the investor must add margin, or face the risk of forced liquidation of the position.

                      • Variation Margin: Based on the daily settlement price, the exchange or clearing house will adjust the balance of the client's margin account on a daily basis to reflect the change in the value of the contract, which is the daily Mark-to-Market process.

                      • Margin Call: When the amount in the margin account falls below the maintenance margin level, the broker will issue a margin call to the client to make up the difference within a specified period of time.

                      Order and Bid in Futures Trading

                      In futures trading, an order is a specific order that an investor sends to a futures exchange or futures broker to convey their intent to trade. There are several types of futures orders:

                      • Limit Order: An investor specifies a specific price at which to buy or sell a futures contract. For example, for a buy limit order, the order is executed only if the market price is equal to or below the purchase price specified by the investor.

                      • Market Order: An investor is willing to buy or sell a futures contract at the best price in the current market. Buy market orders are placed at the current best ask price, regardless of the specific bid price.

                      • Stop Order: An order that converts to a market order when the market price hits a preset level. For example, a stop-loss buy order becomes a market buy order when the market price rises to a specified level.

                      • Stop-limit Order: A stop-limit order combines the characteristics of a Stop loss and a Limit, and once the market price reaches the trigger price, the order will be traded at the limit price or better.

                      The bid price is the highest price investors are willing to pay if they want to buy a futures contract. When the ask price in the market drops to or below the buy price, a limit buy order can be executed. For market buy orders, the bid price is the best offer price available for sale in the market at that time. In the actual trading process, investors need to set the appropriate buying price according to their own trading strategy and market analysis.

                      Order and Bid in Futures Trading

                      Futures Information Channels

                      Futures information is available through a variety of channels so that investors can keep abreast of the dynamics of the futures market, price movements, policy changes, and other relevant information. Here are some common futures information channels:

                      • Futures Exchange official website:

                      China Futures Market Network (under the China Securities Regulatory Commission)

                      Shanghai Futures Exchange

                      Dalian Commodity Exchange

                      Zhengzhou Commodity Exchange

                      China Financial Futures Exchange

                      International famous exchanges such as the Chicago Mercantile Exchange (CME), the London Metal Exchange (LME) and so on

                      • Financial News and finance websites:

                      Finance network

                      Securities Times

                      Wall Street News

                      Reuters, Bloomberg, Financial Times and other internationally renowned financial media

                      Business society, Gold ten data, Zhuo Chuang information and other specialized commodities and futures information website

                      • Industry association website:

                      China Futures Industry Association

                      International Futures Industry Association (FIA)

                      • Futures broker Research report:

                      Official websites and apps of major futures companies, providing the latest research reports, market analysis, trading strategies, etc

                      • Financial Television and Radio:

                      CCTV Financial channel

                      Local financial television station

                      Radio program

                      Network video broadcast platform financial channel

                      • Social media and instant messaging:

                      Industry experts' blogs, micro-blogs, wechat public accounts, etc

                      Futures community forum, group discussion

                      • Mobile applications and terminal software:

                      The trading software of major futures companies usually integrates real-time quotation, news information and other functions

                      Third-party financial information software to provide customized futures information push services

                      • Books and Periodicals:

                      Paper or electronic publications such as daily futures journal and futures magazine

                      Futures Information Channels

                      How to Trade Futures?

                      • Opening an account and signing an agreement: The investor first selects a qualified futures broker or futures company, submits the application materials for opening an account (ID card, address proof, etc.), completes the account opening procedures online or offline, and signs the futures trading contract and related risk disclosure letter.

                      • Deposit: After the completion of account opening, investors need to inject a certain amount of funds as trading margin. Margin is the premise of trading, used to protect against possible market risks.

                      • Learn trading rules and risk tips: Investors need to understand the relevant rules of the futures traded, including trading time, contract specifications, margin system, fluctuation limit range, delivery method, etc., and be familiar with trading risks.

                      • Placing trading orders: Investors place orders to buy and sell futures contracts, including but not limited to market order, limit order, stop loss order and other types, through the trading software or telephone reports provided by futures companies.

                      • Trading and transaction: The electronic trading system of the futures exchange automatically matches the trading orders of the buyers and sellers to reach a transaction according to the principle of “price priority and time priority”.

                      • Daily settlement and margin monitoring: Futures trading adopts a day-by-day mark-to-market system. After the close of trading every day, the futures company or the exchange will calculate the investor's margin account according to the settlement price. If the margin is insufficient, the investor needs to add it in time.

                      • Position Management and adjustment: Investors can adjust their positions according to market changes and personal strategies, including adding, reducing or closing existing futures contracts.

                      • Physical delivery or hedged closing: For contracts close to the delivery month, the investor can choose to close the position before expiration (sell the purchased contract or buy the sold contract), or take physical delivery if conditions are met.

                      • Risk Management and Compliance: Investors need to keep an eye on market dynamics throughout the trading process and adjust risk management measures to ensure that trading practices comply with exchange and regulatory requirements.

                      • Account settlement and statement inquiry: After the end of trading, investors can inquire trading records, bills and settlement statements through the futures company, check the fund flow, and withdraw profits or supplement losses as needed.

                      • Futures Trading Software

                        Futures trading software is mainly used to connect the international market for futures trading, the following are some of the international widely used and recognized futures trading software:

                        • Interactive Brokers Trader Workstation (TWS):

                        IB TWS is a powerful and comprehensive trading platform for futures, options, stocks, forex and many other financial products around the world, providing real-time market data, advanced chart analysis, algorithmic trading tools and risk management capabilities.

                        • MetaTrader 5 (MT5):

                        MT5 is a professional trading platform developed by Madac company. In addition to foreign exchange trading, MT5 also supports the trading of futures, stocks, CFDs and other financial products. It has a wealth of chart analysis tools, backtest and optimization functions, as well as a powerful programming language MQL5, which is easy to realize automated trading strategies.

                        • NinjaTrader:

                        NinjaTrader is known for its advanced chart analysis and powerful trading automation, supporting futures and options trading, compatible with the data and execution services of several well-known brokers, offering both simulated and live trading modes.

                        • TradeStation:

                        TradeStation is a trading platform for active traders and investors, providing a full set of analytical tools, custom indicators and strategy development environment to support futures, options, stocks and other trading instruments, especially suitable for strategy development and programmatic trading.

                        • CQG:

                        CQG is a professional futures and options trading software that provides traders with global market data and trade access services, and is praised by the industry for its highly accurate data and fast trade execution ability.

                        • Bloomberg Terminal:

                        While better known for its news and data services, Bloomberg Terminal also includes powerful futures trading capabilities that provide real-time market data, news, analytical tools, and trade execution capabilities.

                        • ICE Platform:

                        The ICE trading platform, provided by Intercontinental Exchange Group, is designed to provide complete trading solutions for participants in the energy, agricultural, interest rate, credit and other derivatives markets.

                        In addition, individual investors can also use the well-known online trading platform www.etrade.comto conduct futures trading operations. The platform not only provides a convenient online trading environment, but also supports the trading of a variety of futures products, and users can take this opportunity to participate in the trading of commodity futures contracts in the global market

                        Futures Trading Software


                        In conclusion,futures trading is essentially a kind of financial market behavior in which future commodities or financial assets are bought and sold on the basis of standardized contracts. Through futures exchanges, participants trade on margin to lock in prices, manage risk, or seek speculative gains. The trading process includes daily mark-to-market and margin addition mechanisms to ensure the safe and stable operation of the market. With its rich varieties and flexible trading strategies, the futures market provides effective risk management tools and investment channels for all kinds of enterprises, financial institutions and individual investors around the world.


                        Q:When do the futures markets open on weekends?

                        A:Most major international futures exchanges, such as the CME Group (Chicago Mercantile Exchange) in the United States, the Shanghai Futures Exchange in China, and the Dalian Commodity Exchange in China, are closed on Saturday and Sunday, which means that investors cannot buy and sell trades in real time on these two days.

                        Q:When does the stock market close?

                        A:Trading hours and closing hours vary around the world, but most markets follow the standard working hours of their countries or regions and stop trading at some point in the afternoon each day. For example, the US market closes between 3pm and 4pm Eastern time, while the Chinese market closes at 3pm Beijing time. Each market has its own closing and opening hours and is closed on weekends and public holidays.

                        Q:What is Cl Futures Trading?

                        A:The trading of the WTI light crude oil futures contract means that investors can bet on the future trend of crude oil prices, both for speculative trading, and can be used to hedge the risk of oil price fluctuations on business operations.

                        Q:What is Electronic Trade Brokerage?

                        A:It usually refers to a financial intermediary that provides online trading services, allowing individual or institutional investors to buy and sell a variety of financial instruments such as stocks, futures, foreign exchange, options, and bonds through an Internet platform.

                        Q:What is the ticker symbol of TD Bank?

                        A:Toronto-dominion Bank trades under the ticker symbol TD on the Toronto Stock Exchange (TSX) and TD on the New York Stock Exchange (NYSE).

                        Q:What are current s&p futures?

                        A:S&P 500 Futures are futures contracts based on the Standard & Poor's 500 Index that allow investors to buy or sell the broader U.S. stock market at a predetermined price on a specific date in the future. Traders buy and sell these futures contracts to express their views on the future movements of the U.S. stock market and to engage in risk management or speculation.

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