Futures Trading with Tradeview Markets

Futures trading may offer active traders a variety of advantages given the recent increases in risk, volatility, and market uncertainty. However, due to the inherent risk and contract sizes, the positions will move by a multiple of the underlying price change. As is the case with any use of leverage this can magnify both gains and losses.

If you understand how futures contracts work and how they might fit into your portfolio, they can provide additional diversification. So, before trading futures, one should plan ahead of time, conduct research, and be aware of both the benefits and risks. 

Let’s go over the fundamentals of futures contracts and why you might want to include them in your trading strategy.

What Are Futures Contracts?A futures contract is an agreement to buy or sell an underlying asset at a future date at a predetermined price. Futures contracts, also known as “futures,” are traded on futures exchanges such as the CME Group and entail the use of a futures-approved brokerage account.

Futures contracts enable market participants to mitigate or take on the risk of an asset’s price movement over time. 

An investor who purchases the right to buy expects to profit from an increase in the price of the underlying asset. By purchasing the right to sell, the investor anticipates profiting from a decline in the value of the underlying asset. This may also be used to hedge another position in the investor or trader’s portfolio.

Future contracts are also referred to as derivatives because their value is derived from an underlying asset. Similar to an options contract, a futures contract involves both a buyer and a seller. What distinguishes them, though, is what occurs on the expiration date.

Options, for example, can lose their value when they expire. When a futures contract expires, however, the buyer is required to purchase and receive the underlying asset. Similarly, the seller of the futures contract is responsible for providing and delivering the underlying asset.

Futures Contracts Are Exchange-Traded Products

Futures contracts are created by regulated exchanges like the CME Group. Therefore, exchanges are in charge of standardizing each contract’s specifications. The exchange also ensures that the contract will be fulfilled.

Exchange-traded futures contracts are centrally-cleared. In other words, when a futures contract is bought or sold, the exchange acts as both the buyer and the seller to all parties involved. 

This significantly lowers the credit risk brought on by a single buyer or seller’s default. As a result, the exchange eliminates counterparty risk and, in contrast to a forward contract market, gives participants in futures markets anonymity.

The exchange allows participants to enter and exit the market with ease by bringing confident buyers and sellers together on the same trading platform. This contributes to the futures markets being highly liquid and optimal for price discovery.

Futures Trading with a True Market Leader

Tradeview Markets has used our trading software to gain access to the world’s leading derivatives exchanges, like the CME Group. The CME Group operates the world’s largest and most diverse derivatives market. They offer the broadest set of futures and options products for risk management.

The CME Group (Source: Flickr)

Tradeview Markets is proud to be a registered futures broker with a world-class organization like the CME Group. This is yet another example of how we are able to provide best-in-class products to our expanding customer base.

Typical Futures Market Participants

The CME Group categorizes futures traders into two main groups: hedgers and speculators. Hedgers try to manage price risk more effectively by using the futures market. On the other hand, speculators take on that risk in an effort to profit from positive price movement.

While futures help hedgers manage their price risk exposure, the market would not exist if speculators did not participate. They provide the majority of market liquidity, allowing the hedger to efficiently enter and exit the market.

Speculators can be full-time professional traders or individuals who trade on a part-time basis. Some people hold positions for months, while others only keep a trade for a few seconds.

Regardless of their approach, each market participant makes a significant contribution to the futures market’s efficiency.

The Chicago Board of Trade (CBOT), (Source: Flickr)

Benefits of Trading FuturesFutures have several significant advantages over stocks and options. They do, however, use more leverage, which can be both beneficial and risky.

Knowing the key advantages of trading futures is critical to becoming a complete trader. Equally important is understanding the potential risks associated with futures trading. Let’s examine some of the key characteristics of futures contracts:

• After-Hours Trading: When a market is closed and an opportunity arises, an equity trader cannot take advantage of it. Worse, if you need to get out of a position, you have to do so when the market opens. You can make a move in the world of futures nearly 24 hours a day, six days a week. A futures trader can therefore respond to the event as it is happening.

• After-Hours Trading: When a market is closed and an opportunity arises, an equity trader cannot take advantage of it. Worse, if you need to get out of a position, you have to do so when the market opens. You can make a move in the world of futures nearly 24 hours a day, six days a week. A futures trader can therefore respond to the event as it is happening.
• True Portfolio Diversification: The diversity of an investment portfolio is one of its most important characteristics. Portfolio diversification helps to offset exposure in any single position and protects investors from large swings in key sectors. Investing in both stocks and bonds allows traders to diversify their portfolios. However, adding futures and options on futures contracts to a portfolio can be very beneficial during times of market turbulence. Market participants can use futures and options on futures to hedge against sector-specific market risk. They also allow investors to adjust their desired exposure during expected and unexpected event volatility.Futures and options on futures contracts provide the flexibility to diversify any trading plan and can be tailored to each trader’s long-term investment goals.
• Deep Liquidity: Liquidity is one of the most important factors in determining market opportunities. Liquidity is fundamentally the result of traders’ opinions on the market being expressed collectively.These opinions, like any other market, are represented in a futures market by existing positions held by traders. This is known as open interest, or buy or sell orders communicated to the rest of the market but still need to be executed.These orders can range greatly in size and cost. More important though, is the fact that market liquidity increases with the number of opinions expressed therein.

• Increase Capital Efficiency: Although it might seem risky, leverage can change the game when used effectively. Leverage is the capacity to manage a significant contract value with a modest amount of capital.In the futures market, this capital is referred to as a performance bond or initial margin, and it typically amounts to 3-12% of a contract’s notional or cash value. Experienced futures traders understand the potential benefits and risks of using leverage as part of a well-planned risk management strategy. You, too, can now use leverage to improve capital efficiency and increase exposure. 

Potential Risks to ConsiderCommodity prices, on the other hand, can be extremely volatile, and investing in commodity futures and related products can be extremely risky. Know what type of exposure your investment provides, and how exposure to futures differs from exposure to a commodity’s spot price.

Longer-term performance differences between futures investments and the spot price of the same commodity are possible, and geared ETPs can amplify these differences.

Of course, any claim that trading futures can help you quickly and easily generate large profits should be viewed with skepticism. Yes, the leverage used in futures trading can result in returns that are a multiple of the underlying asset’s price change.

However, this applies to both gains and losses, so make sure you understand the risks associated with trading futures.

Before Investing in Futures Contracts

• Take into account your financial experience, goals, and financial resources.
• Determine how much you can afford to lose in excess of your initial investment.
• Understand all of the obligations that come with any contract you buy.
• Review the risk disclosure documents that the broker is required to provide in detail.
• Know who to contact if you have a problem or a question. You can reach us through your Tradeview Markets Sales representative.
• Before opening a trading account, ask questions and gather information.

Why Use Tradeview Markets to Trade Futures?

Whether you’re new to futures or are looking for a more robust trading experience, Tradeview Markets can help!  Our futures specialists are committed to assisting you in evaluating and implementing your futures strategies by leveraging their decades of trading experience.

Here are a few of the reasons why Tradeview Markets provides the most efficient futures trading platform available:

Multiple Futures Products to TradeTradeview Market’s integrated platform provides the full range of futures trading: 

Gold and Silver (Image by kevinp133 from Pixabay)

Direct Market Access (DMA)Stay ahead of the competition with our cutting-edge technology, designed for all investor levels. We provide our clients with quick and accurate pricing and execution using our Direct Market Access technology.

As a Tradeview Markets futures investor, you have access to the most liquid contracts from the CBOT, CFE, COMEX, EUREX, ICE, MGE, NYMEX, SMFE, and CME. That means you’ll be able to execute the trading strategies you want, when you want, at the most cost-effective price.

Award-Winning Trading SoftwareOur advanced trading platforms are intended for traders looking for a competitive advantage. Choose from MetaTrader 4, MetaTrader 5, cTrader, and Currenex.

Furthermore, Tradeview Trader Pro provides MAM-style trading for Money Managers, Professional Traders, and Investors who trade in the Futures Markets. Users can now create, manage, and modify block allocations for Exchange Listed Futures and Options directly on the platform.

Here are some of the benefits that Block Trading on Tradeview Trader Pro can provide:

• Use a single User ID to manage multiple accounts.
• Allocation in real-time based on predefined trading strategies.
• Trade for several accounts with a single button click.
• All trade orders at the preset strategies will automatically trade in increments of the total allocation while actively using the Block Allocation functionality! Do you want to trade 20 lots per unit? TVT Pro ensures that your orders are filled in increments of 20, 40, 60, etc.
• The trader is in charge of allocation rules and execution.

Some of the Tightest Spreads in the Industry

Trading with low spreads results in lower operating costs and long-term savings for the trader. A trader with a wide spread must make more profits to cover their losses. Many traders place a high value on the spread when calculating their losses and gains.

Trading with Tradeview Markets gives you access to some of the most advantageous trading conditions available, including the lowest possible commissions and spreads.

Licensed and Regulated

Tradeview Ltd. is a broker-dealer licensed to conduct securities investment business and is regulated as a full securities broker-dealer by the Cayman Islands Monetary Authority (CIMA). Tradeview Ltd. proudly serves retail, professional, and institutional investors outside of the United States.

In addition, Tradeview operates in accordance with the Securities Investment Business Act (SIBA). SIBA establishes regulations for persons conducting securities investment business in or out of the Cayman Islands, including market makers, broker-dealers, securities arrangers, securities advisors, and securities managers.

The Cayman Islands Monetary Authority (CIMA) is directly responsible for licensing, as well as supervision and enforcement of licensees, under the SIBA.