What are futures and how do you trade them?
Futures are agreements to buy or sell something later, but at a price that’s set at the beginning of the contracts. Learn how to trade futures, which markets are available and more.
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Written by Anzél Killian, Senior Financial Writer. Reviewed by Axel Rudolph, Senior Market Analyst
What’s on this page?
What is futures trading?
Futures trading is the act of buying and selling futures. These are financial contracts in which two parties – a buyer and a seller – agree to exchange an underlying asset for a predetermined price at a future date. Both parties are obligated to fulfil the contract terms by making the exchange before the contract’s expiry.
You can trade listed futures on our US options and futures platform, which gives you access to indices, forex, interest rates, commodities, stocks and exchange-traded funds (ETFs). You’ll take positions via outright futures contracts that track an underlying’s spot price.
You can also trade on futures using our OTC products – spread bets and contracts for difference (CFDs).
When using our US options and futures platform, you can hold financially settled futures to expiration. To try avoid physical delivery, futures with a deliverable can’t be held until the expiry date on our dedicated platform; so the last trading day is the day before the expiry date of the contract.1
When trading using our OTC products you speculate on the price of a future (or forwards, as they’re known in stocks, ETFs, and forex markets when trading spread bets).
Find out what the differences are between futures and forwards
You can also use these OTC products to trade a wide range of spot (or ‘cash’) markets. OTC futures have wider spreads – the difference between the bid and ask prices that varies depending on market conditions – compared to OTC spot positions. This is because of overnight funding fees being included in the spreads of futures, whereas a charge applies to a spot position that’s left open at the end of a trading day.
Many traders find the abovementioned ways of trading accessible as there’s no obligation to buy or sell the physical asset that the position is based on. So, you won’t be taking or transferring ownership of the underlying asset.1
Whichever way you choose to trade futures, there are possible tax benefits.2
Differences between listed and OTC futures
Listed products that are in their pure form, like exchange-based futures and options differ from over-the-counter (OTC) products like spread bets and CFDs.
Here are some of the main differences between listed and OTC futures:
| Exchange-traded (listed) futures | OTC futures | |
| Trading venue | On exchange (eg CME, ICE, Euronext): centralised marketplace for buyers and sellers | Over the counter: direct trade between two parties (usually through a broker like us) |
| Agreement or contract | Standardised (non-negotiable) | Bespoke (can be customised) |
| Regulation | The exchange is regulated by government authorities, eg Securities and Exchange Commission (SEC) | Subject to less stringent regulatory requirements |
| Counterparty risk* | Mitigated by an exchange’s clearinghouse | Higher; default risk from both parties |
| Liquidity | Typically higher as there’s a higher number of market participants | May be lower due to less participants in decentralised markets |
* When trading on our platform, counterparty risk is limited based on the terms and agreements that govern our relationship with you.
Speculate on a wide range of markets
Below are some of the futures markets that you can trade with us:
Share forwards
Take a position on thousands of global shares like Apple, Alibaba, Meta, Samsung Electronics and Amazon
Index futures
Gain exposure to global stock indices including the FTSE 100, Germany 40 and Wall Street
ETF forwards
Trade on price volatility in ETFs across indices, sectors, commodities, bonds or currencies
Commodity futures
Speculate on both hard and soft commodities including gold, silver, wheat, corn and oil
Forex forwards
Go long or short on major currencies like GBP/USD and EUR/USD, plus minor and exotic pairs
Bond futures
Trade on the value of different bonds rising or falling, including German, UK and US government bonds
Markets available with us per product
Below are the futures and forwards markets you can trade with us according to product type.
US-listed futures: indices (including volatility indices), forex, rates and commodities
Spread bet futures: indices, commodities, bonds and interest rates
Spread bet forwards: shares, ETFs and forex
CFD futures: indices, commodities, bonds and rates
Go long or short
When trading futures you can go both long or short. You’d go long if you think that the underlying market price will rise, and you’d go short if you think it’ll fall. Your profit or loss is determined by the accuracy of your prediction, and the overall size of the market movement.
Get exposure at low costs
With us, you’ll trade listed futures – which are typically held over the medium term – at low commissions. You’ll pay $0.85 each way on a micro futures trade and no commission to close on options on futures, including their micro versions.
We also offer competitive pricing on spread bet and CFD futures (and spread bet forwards). Our OTC futures are suitable for longer term positions – compared to spot positions on the underlying – as no overnight costs apply. Instead, this cost is built into the spread.
You can trade on the spot with continuous, real-time pricing that’s based on the underlying market.
Cash markets are suitable for day trading as overnight funding costs apply.
Trade with leverage
Futures contracts are leveraged. So, they enable you to receive increased market exposure for a small deposit – known as ‘margin’ – and your trading provider loans you the rest of the trade’s total amount.3
When trading with leverage, it’s important to remember that your profit or loss will be determined by the total size of your position, not just the margin used to open it. This means there’s an inherent risk that you could make a loss (or a profit) that could far outweigh your initial capital outlay, making it important to manage your risk.3
Access our deep liquidity
Liquidity is typically higher in on-exchange futures as there’s a higher number of market participants.
But even though liquidity can be lower in decentralised markets like OTC futures, you’re likely to have your order filled at your desired price with us. This is because of the number of trades that we handle every day – coupled with our international reach and large client base – it means that our futures markets are particularly liquid.
Learn more about our best execution times and deep liquidity
Hedge your existing positions
Hedging with futures enables you to control your exposure to risk in an underlying market. For example, if you own shares in companies on the FTSE 100 and you’re concerned about them dropping in value, you could short a FTSE 100 index future. Your potential profits from the trade could offset a proportion of your share position losses.
If you had current short positions on the other hand, you could go long on an index future in case the market rises, with the idea that your potential long profits would offset your short losses.
How to trade futures
To trade futures with us, follow the steps below:
Understand how futures trading works
Futures trading works by speculating on underlying market price movements using outright futures contracts that are traded on an exchange or through OTC products.
Whether you go for futures that are traded on-exchange through our US-listed product offering or direct futures trades between two parties with us – via spread bets or CFDs – you can go long or short. So, you can profit from markets that are rising as well as ones that are falling, provided your predictions are correct. If they aren’t, you’ll incur a loss.
Pick a futures market to trade
With various futures markets to choose from, you should establish which one is most suited to your individual trading style. Some indices – like the Germany 40 – experience higher volatility than others, and could be better suited to day traders for example.
Other markets, such as gold or silver commodity futures are often preferred by traders who have lower risk appetites and enjoy markets with lower volatility. Depending on your needs, you’ll also choose the products to use for exposure to your preferred markets.
Create an account and log in
We’re a FTSE 250 company with 50 years’ experience. To start trading futures on our award-winning trading platform,4 you can create a live account with us.
Our spreads and commissions are among the lowest in the industry. You’ll either pay a spread or commission, depending on the product you’re trading with.
Find out more about futures spreads and charges
We have a diverse range of exchange-traded futures as well as OTC futures and forwards offerings, which include the most popular indices, commodities, bonds, forex pairs and shares on the market.
Decide whether to go long or short
Going long means that you’re speculating on the value of a future’s underlying increasing; going short means that you’re speculating on its value decreasing.
If you think that the underlying price of a future will increase based on your own fundamental and technical analysis, you’d open a long position. If, instead, your analysis suggests that the underlying market price will fall, you’d open a short position. If the market moves in your favour, you can close your position for a profit. If the market moves against your position and you close your trade at an unfavourable price, you’ll incur a loss.
Place your first trade
To place your first trade, go to our trading platform, choose an account type and select a market. Decide whether you want to buy or sell the underlying market, and choose your position size.
This is how you’d take an oil futures position using a CFD account with us:*
On our mobile app, futures and forward markets are listed separately to spot and cash markets in spread bet and CFD accounts.
* The interface of our streamlined listed options and futures platform from tastytrade looks different.
Manage your risk
Managing your risk by using tools such as stop-loss and limit-close orders can help you avoid significant losses while aiming to lock in profits. These risk management tools are used to exit a trade and are also referred to as ‘stop and limit orders’ – it’s important to not confuse these with stop-entry and limit-entry orders, which are types of market orders that are used to enter a trade.
A stop-loss order will close your position automatically if the price moves to a less favourable level that you’ve set, while a closing limit order is an automated instruction to exit a trade if it reaches your selected favourable price.
We offer standard, trailing and guaranteed stops,5 and you can set your stops and limits to exit a trade directly from the deal ticket. Once you’re happy with your levels, you can place your deal. You can also set or adjust these exit levels after you’ve placed your trade.
Monitor and close your position
After you’ve placed your trade and it’s been filled, you’ll need to monitor it to make sure that the markets are behaving in the way that you expected. If they aren’t, you might want to close your trade to minimise your losses. If they are, you might want to close your trade after having achieved a profit that’s satisfactory for you.
Remember, you don’t have to wait until the contract’s expiry date to close your position – you can exit a futures trade before the last trading day.1
Futures trading example
Say it’s July and you think the price of oil is going to rise in the future – you could open a long position on a September oil future. Your profit is determined by how much the price of oil has risen by the future’s expiry, and the size of your position – less any relevant charges (eg our spread).
Alternatively, if you think that the price of oil is going to fall, you could go short on the oil future. In this example, you’d profit based on how much the oil price fell and the size of your position (less the amount of relevant costs and charges).
In both scenarios, your position would be closed automatically in September – but you could close it before by the last trading day.1 The months for a futures contract will vary – the example given here (which uses September) is for explanatory purposes only. You should check the expiry of a futures contract before you open a position.
FAQs
What is the definition of futures in trading?
Futures in trading is an agreement between two parties to exchange an underlying asset at a predetermined price at a later date, on or before the contract’s expiry. With us, you can choose from three types of financial derivatives to trade futures: listed futures, spread bets, and CFDs.
How are futures priced?
Futures are priced according to the spot value of their underlying market, plus a spread or commission that you pay a broker for executing your trade and any other relevant fees. The forces of supply and demand also play a role in determining how the price of a futures contract will move – higher demand and lower supply cause prices to rise, while lower demand and higher supply cause prices to fall.
How does margin work in futures trading?
Margin in futures trading enables you to put down a small deposit to open a trade, while receiving much larger market exposure. However, you should remember that when trading with margin, potential profit or loss is ultimately determined by the full size of the position, and not just the margin required to open it.3
Can anyone trade futures?
Yes, anyone can trade futures.
What are the differences between futures and options?
Futures contracts are different to options contracts because they obligate both parties to exchange the underlying for the agreed upon price. An options contract on the other hand, only obligates the options writer (or seller) to make the exchange (buy or sell) if the contract owner chooses to exercise their side of the agreement. The options holder would typically do this if they feel that the market has moved in their favour.
Learn more about the differences between futures and options
What is the difference between futures prices and spot prices?
The futures price is the price that you lock in when trading a futures contract, and it’s what you’ll be able to buy or sell the underlying market at or before the contract’s expiry date, based on the asset’s quantity that you chose.1 The spot price is the current underlying market price that you would be able to trade at if you opened a position today.
Develop your knowledge of financial markets
Find out more about a range of markets and test yourself with IG Academy’s online courses.
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1 A very small percentage of listed futures contracts end in a physical delivery as most positions are closed before the expiration. In cases of physically deliverable futures, a ‘first notice date’ applies. This date refers to the first day a delivery of an underlying asset can be made. To avoid delivery, tastytrade sends a first notice date email a few days before the actual day, detailing when the contract can be closed or rolled into the next cycle. Agriculture, metals, and interest rates futures contracts are subject to first notice; while the same three plus currency and energy (excluding E-mini) can be physically delivered.
2 Tax laws are subject to change and depend on individual circumstances. Tax law may differ in a jurisdiction other than the UK.
3 Leveraged products such as spread bets, CFDs and US-listed futures are complex financial instruments, with which an upfront deposit – called margin or buying power – is used to open a larger trade. Your margin will only be worth a certain percentage of your trade, but potential profits and losses will be calculated based on the total position size, not your margin. This makes leveraged trading inherently risky and should never be approached without a trading strategy and adequate risk management in place. Pure-form options are non-marginable, even when traded in a margin account.
4 Best platform for the active trader, best multi-platform provider and best finance app as awarded at the ADVFN International Financial Awards 2024. Best share dealing platform as awarded at the Your Money Investment Finance Awards 2024.
5 Guaranteed stops incur a premium if triggered.
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Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 70% of retail investor accounts lose money when trading spread bets and CFDs with this provider. You should consider whether you understand how spread bets and CFDs work and whether you can afford to take the high risk of losing your money.
Professional clients trading spread bets and CFDs can lose more than they deposit.
Options and futures are complex instruments which come with a high risk of losing money rapidly due to leverage. They’re not suitable for most investors. Before you invest, you should consider whether you understand how options and futures work, the risks of trading these instruments and whether you can afford to lose more than your original investment.
Trading stocks and shares ‘on margin’ within a US options and futures account – meaning that you only finance part of the cost of acquiring a position in a security – carries additional risks over buying securities on a fully funded basis and may result in losses exceeding your original investment. Trading on margin will also result in additional costs to you as the investor and any securities purchased using margin may be held as collateral by the lender, restricting both your rights as shareholder, and your ability to use the securities until the margin trade is closed. You should familiarise yourself with these risks before trading on margin.
The value of shares, ETFs and other ETPs bought through a share dealing account, a US options and futures account, a stocks and shares ISA or a SIPP can fall as well as rise, which could mean getting back less than you originally put in. Past performance is no guarantee of future results. Some ETPs carry additional risks depending on how they’re structured, investors should ensure they familiarise themselves with the differences before investing.
Share dealing and IG Smart Portfolio accounts provided by IG Trading and Investments Ltd, CFD accounts and US options and futures accounts are provided by IG Markets Ltd, spread betting provided by IG Index Ltd.
IG is a trading name of IG Trading and Investments Ltd (a company registered in England and Wales under number 11628764), IG Markets Ltd (a company registered in England and Wales under number 04008957) and IG Index Ltd (a company registered in England and Wales under number 01190902). Registered address at Cannon Bridge House, 25 Dowgate Hill, London EC4R 2YA. IG Markets Ltd (Register number 195355), IG Trading and Investments Ltd (Register Number 944492) and IG Index Ltd (Register number 114059) are authorised and regulated by the Financial Conduct Authority.
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