Futures: What they are and how to trade them

How to trade futures with us

Trading futures with IG gives you access to a wide range of markets through spread bets and CFDs, meaning you do not need to deal directly with a futures exchange or worry about physical delivery.

Here is how it works, step by step:

1. Open an account - Create and verify your IG account. You can also practice with a free demo account first, using virtual funds to hone your skills in a less risky environment.

2. Choose your market - Search for the futures market you want (e.g.: US 500 for S&P 500 futures exposure).

3. Decide your position size - With spread bets, you trade in pounds per point; with CFDs, you trade in contracts.

4. Set your risk management - Use stop-loss orders and take-profit orders to manage downside risk, and ensure that positions are closed at predetermined levels.

5. Monitor and manage - Keep an eye on margin requirements and expiry dates,  ensuring that you roll over or close positions before expiry.

When you trade futures via IG, you are trading on the price of the futures contract rather than entering the exchange-traded contract itself. This means you can trade on margin, go long or short, and choose between spread bets (which can be tax-efficient for eligible UK traders) and CFDs.

These instruments use leverage, which means that losses can outweigh your initial deposit. This makes effective risk management essential.

Not ready to go live just yet, but keen to get going? Our demo account lets you practice with virtual funds, and therefore no real capital at risk.

Futures vs CFDs vs spread betting

When trading futures price movements in the UK, you have three main vehicles. Understanding the differences helps you choose the right approach for your goals.

*Spread betting profits are normally exempt from UK capital gains tax and stamp duty, however tax laws can change. Tax treatment depends on individual circumstances.

How does margin work in futures trading?

Futures are leveraged instruments, which means you only need to deposit a fraction of the total contract value to open a position. This deposit is called margin.

There are two types of margin to understand:

• Initial margin - The amount required to open a position. This is typically a small percentage of the contract's notional value.
• Maintenance margin - The minimum balance required to keep your position open. If your account falls below this level, you will receive a margin call, requiring you to deposit more funds or close part of your position.

As mentioned previously, leverage amplifies losses (as well as profits). If the market moves against you, losses can exceed your initial deposit. This is why risk management, including stop-loss orders, is essential when trading futures. However, retail traders benefit from negative balance protection under UK law, meaning that we are obligated to return your balance back up to zero as soon as possible – at no cost to you. This protection, however, doesn't apply to professional traders.

When trading futures with us, margin rates vary by market and are displayed clearly before you open a trade.

Futures trading strategies

Futures can be used in multiple ways - from hedging an investment portfolio to making directional trades on price movements.

1. Speculation

Traders speculate on whether a futures price will rise or fall. Going long (buying) means you expect the price to increase; going short (selling) means you expect it to fall. Leveraged exposure means even small price movements can have a significant effect on your P&L.

2. Hedging

Producers, exporters, and investors use futures to protect against unfavourable price moves. An oil producer, for example, might sell crude oil futures to lock in a price and reduce the risk of falling oil prices before their product reaches market. Similarly, a UK investor holding US equities might use S&P 500 futures to hedge against a market downturn.

3. Spread trading

Spread trading involves simultaneously buying one futures contract and selling another on the same or related market. The trader profits from the change in the price difference between the two contracts rather than the absolute price level. This means the position is largely insulated from broad market moves. In other words, if both contracts rise or fall together, the spread trader is relatively unaffected. What matters is whether the gap between the two prices widens or narrows in the direction they anticipated.

The two contracts involved are typically referred to as the 'legs' of the spread. These might be the same asset with different expiry dates (known as a calendar spread), two related but distinct assets such as crude oil and natural gas (an inter-commodity spread), or the same asset trading on different exchanges. Each variation carries its own risk profile and is suited to different market conditions and trading objectives.

Because the two legs tend to move in the same direction, the net exposure is lower than holding an outright position. This strategy can therefore reduce margin requirements and overall market risk, making spread trading a popular approach among more experienced traders looking to manage volatility while still capitalising on relative price movements.

Some retail traders start with speculation. But futures were built for hedging, and understanding that changes how you think about them.

Futures expiry and rolling over positions

Every futures contract has an expiry date. In other words, the date on which the contract must be settled or closed. For traders who want to maintain exposure beyond this date, the position needs to be rolled over.

Rolling over means closing the expiring contract and simultaneously opening a new contract with a later expiry date. The cost or benefit of rolling depends on the relationship between the spot price and the futures price - a concept known as the basis. There are key differences between futures and forwards, which we cover in this guide.

There are two important pricing concepts to keep in mind:

• Contango - when the futures price is higher than the spot price. Rolling typically incurs a cost in contango markets (common in oil and commodities). Contango tends to occur when storage costs, insurance, or financing costs are factored into the future price, or when near-term supply is plentiful. Over time, this can meaningfully drag on returns for investors who repeatedly roll their positions forward.
• Backwardation - when the futures price is below the spot price. Rolling may generate a benefit in backwardated markets (sometimes seen in energy markets during supply crunches). Backwardation often signals tight near-term supply or strong immediate demand, pushing the spot price above what the market expects in the future. In this environment, rolling contracts can provide a tailwind to returns rather than a cost.

When you trade futures with us, expiry dates and roll information are displayed on the platform. You can choose to roll your position or let it expire.

Futures trading hours

One of the advantages of futures markets is their near-24-hour trading availability during weekdays. Trading hours vary by market.

Hours above are approximate and may vary. Check the exact trading hours for each market before opening a position.