What is a good Futures strategy for beginners?

[Sam Button]

[Justin Freeman]

Despite being aderivative product Futures are a relatively intuitive way of trading the financial markets. You’ll find broker platforms using futures to make markets in such things as Indices, Commodities, Treasuries and even Cryptocurrencies. It’s important to note that futures are contracts that are in place for a set period of time. Institutional grade traders use the term to describe a contract where the holder of the futures is obliged to purchase a particular asset at a pre-determined future date and at a particular price. In some markets, where ‘physical delivery’ is part of the terms and conditions, and the holder of the Future is actually expected to take physical delivery of the several tons of coal/wheat/sugar or whatever they are trading. The instruments do after all originate from the ‘real world’ where businesses look to secure delivery on raw materials. Retail brokers tend to use the term to reflect something more like a CFD and facilitate the ‘rolling’ of Futures, but it is important to understand the Ts&Cs that apply. Taking an example from Markets.com the platform offers Futures in the Italy 40 Index (see below). Buying these will give you exposure to the Italy 40 Index. If you’re Long and the Futures and the price of the underlying index goes up then you’ll post a profit, and vice versa. Do note though that the below execution ticket displays that the Futures have quarterly ‘Rollover Dates’ on the 2^nd Friday of June, Sep and Dec. The benefit of holding Futures in this instance is you’re able to take a position in the whole Italy 40 Index rather than individual stock names. Futures tend to be instruments where holding one position gives exposure to a range of underlying instruments. Futures are often used as a hedging instrument. For example, if you are Long on one particular stock name in the UK100 Index you can hedge against market risk by going short on the Index. If your analysis is correct and the single stock outperforms the rest of the index you stand to make a profit. If there is a general market sell-off, the Short future position could return profits to compensate on the losses to your long stock holding. Some traders successfully trade Futures on a stand-alone basis, not as a hedge. In these instances, generic strategies can be applied. Whatever the approach, take care with the Rollover aspects of the instrument but enjoy the wider exposure they can offer.