If you’ve got experience trading stocks and options, but haven’t explored futures yet, grab a cup of coffee because, by the time you’re done reading this article, you’ll have learned what futures trading is and how it works, the tools to help you get started on the right foot, and some common mistakes to avoid.

What is Futures Trading?

If you’ve been investing in stocks, options, or crypto, you’ve probably heard of Futures Trading. Futures are standardized contracts with a preset date and price that obligate the buyer to buy or the seller to sell an asset, such as stocks, oil, or cryptocurrency. Essentially, it’s a directional bet with higher leverage than trading stocks alone.

Why Trade Futures?

So, why would you trade futures? Trading futures can be used for two main reasons: Hedging and Speculation. Hedging may give you protection against potential losses on an investment, while speculation refers to making a profit from predicting price increases.

Common Underlying Assets

Future contracts are tied to the value of an underlying asset. Underlying assets can include commodities such as coffee or oil, financial instruments like stocks, currencies like the US dollar, and cryptocurrencies like Bitcoin.

So, an “underlying asset” is the basis of the value of a futures contract. When you buy or sell a futures contract, you’re not directly buying oil, stock, currency, or crypto – but you’re trading a contract based on its price.

Understanding Futures Contracts

Now, before you start trading, let’s begin with an introduction to some basic information related to futures contracts, like the contract size, ticks, expirations, and settlements.

Let’s start with the contract size. Contract size refers to the amount or quantity of an underlying asset that a single contract represents. Tick size is the minimum price increment by which a futures contract can move. The expiration date, as the name suggests, refers to the ending date when the contract is settled. Lastly, settlement methods can include physical delivery, the actual exchange of the underlying asset, and cash settlement, which is a cash payment at the expiration date.

Some popular futures contracts include the E-mini S&P 500 (ES), which is many equity index traders use. Crude Oil (CL) is widely traded for oil, and FX Futures (USD / EUR) is also a very popular FX trade.

Buyers and sellers of these futures contracts see opportunities for price increases and a way to hedge against risk.

Key Concepts in Futures Trading

So, do you think you’re ready to trade future contracts? Hold on, we still need to talk about some of the concepts.

Let’s start with leverage and margin. Futures trading offers incredible leverage, which is one of its biggest selling points. Margin allows you to control a large amount of the underlying asset with a relatively small amount of capital, but here’s the thing. Margin requirements are updated daily and is increased if the futures contract is held overnight. Expect that margin requirements can change anytime. But in order to have margin, you’ll need collateral. Collateral could be cash or other investments.

For example, say you bought a futures contract worth $50,000 of an underlying asset. Depending on the contract, you might only need $5000 in collateral to buy one contract. And because of leverage, If the underlying asset rises 10%, the contract value increases by $5,000. However, if it loses 10%, then your collateral is wiped out.

There are two types of margin: initial and maintenance.

Initial Margin is the upfront collateral required to buy a futures contract. It is usually expressed as a percentage of the whole contract’s value.

On the other hand, the Maintenance Margin is the amount required to keep your positions open. Dropping below this level, perhaps caused by losses, will lead to a margin call or a warning to deposit more funds. Now, let’s talk about a brokerage where you can trade futures.

Types of Futures Contracts

On Plus500, investors can choose to trade on nine different agriculture-related futures contracts, twenty-three different commodities futures contracts, including oil and gold, 13 forex futures, 10 equity indices, including the S&P 500, 10 different energy futures, four interest rates futures, and two cryptocurrency futures, including Bitcoin.

Now, let’s go ahead and make a demo account on Plus500 so I can show you around. I love demo accounts like this as they allow traders to experience futures trading without risking actual money.

Not only that, but Plus500 offers Futures Academy, which provides educational content to help traders understand the basics of futures trading. If you think you’re not yet ready, I highly recommend checking them out.

Once your account is open, you’ll see something like this.

At the top, you can find a custom watch list, which you can set later, and at the bottom are the live charts. Here’s your navigation menu, where you can find the options to fund your account using a debit card, Wire transfer, Apple Pay, and Google Pay, after payment verification.

Going back to the live chart. Plus500 allows you to display multiple charts at once with technical analysis, like indicators and drawing tools.

However, what makes Plus500 most attractive is that it has one of the lowest fees in the market and does not charge platform, deposit, or withdrawal fees.

Now, you can head to the instruments and select from a variety of futures contracts you want to trade.

Tools and Resources for Traders

Speaking of which, with Plus500, you can now trade CME-listed futures — things like gold, Bitcoin, the S&P500, oil, agriculture, metals, forex, even interest rates — all from one easy-to-use platform.

What I really like here is that you get real-time market data, 24/5 trading access, and a super fast, simple account setup. You can fund with Google Pay, Apple Pay, or debit cards — it’s seamless. Plus, once your account is approved, you can start with just $100, and they’re currently offering a welcome bonus of up to $200 commission-free at the time of recording.

Another big win is their no platform fees, no market data fees, no routing fees, which is rare in this space. And the day trading margin rates are very competitive.

If you’re new to futures — or want to sharpen your skills, check out their Futures Academy with live 24/7 support and expert-led webinars. Whether you’re just starting or scaling up, it’s a great resource.

The platform itself is very intuitive — it works great on desktop and mobile. You’ve got advanced chart indicators, stop loss, and trailing stops for risk management, and auto liquidation.

Most importantly, Plus500 is fully regulated in the US by the CFTC/NFA, holding 13 global regulatory licenses.

So, if you’ve been thinking about adding futures to your trading toolkit — or want an easy way to get started — definitely check out Plus500. You can just scan this QR code or hit the link in the description to learn more.

QR URL: https://rickorford.com/plus500

Common Mistakes to Avoid Before Making A Trade

Before making your first futures trade, it’s important to know four of the most common mistakes to avoid.

First is emotional trading, where decisions are made based on feelings, often fueled by fear, greed, hope, or frustration, rather than adhering to a rational strategy.

Another is the lack of a trading plan. A trading plan means deciding what you’ll trade, when you’ll execute the trade, and timing your entry and exit points. Trading Futures without a trading plan is essentially gambling.

Next is ignoring market news. Market news, including potential recessions, trade wars, and interest rate fluctuations, can significantly impact market trends. A good trader keeps track of the news and combines it with other information to assess a trading strategy.

The last common mistake is overtrading. Trading too much or having too many positions open at the same time is difficult to track, and increases risk. Start slow, use the demo account, and trade with real money only after you’re fully confident in your new skills.

My Challenge to You

So, with all that said, I have a challenge for you. If you think it’s time to dip your toes into futures trading, work with a reliable broker like Plus500, which is user-friendly, feature-rich, and cost-efficient. Use their free demo account to try making some trades. And then, when you’re confident enough, start small with micro or mini contracts.

Remember, continuous learning is the key to investing, not just Futures trading.

Disclaimer: Trading futures involves the risk of loss and is not suitable for every investor.

This article Futures Trading 101: Learn the Basics and Avoid Rookie Mistakes originally appeared on Rick Orford.