Swing Trading Futures
Futures trading has become one of the most popular investing strategies globally, but how can aspiring swing traders get started? This guide will be your futures trading 101, providing an online tutorial for beginners who want to trade forex, stocks, commodities or crypto futures. We will also go through the basics of choosing the best futures brokers and trading platforms in 2024.
Top Recommended Brokers For Futures Trading for United States
How Futures Trading Works
Futures are derivative financial contracts between two parties: a buyer and a seller. The contract represents an agreement to exchange an asset, such as gold, at a fixed price on a future date. Futures contracts are an obligation; meaning the buyer must purchase the underlying asset and the seller must sell at the contract expiry.
A derivative is a financial instrument that derives its value from the price fluctuations of another instrument, such as the S&P 500. There are many derivative instruments available, including futures, options, forwards and swaps. When you are futures trading, the contract will come to an end and the relevant gains and losses will be settled.
Ticks
Futures contracts’ prices constantly fluctuate, creating potential profits or losses for the parties involved. The value of the recorded change is known as ticks. It can be defined as the least price movement that futures contracts make at any moment during the swing trading session.
The ticks value can be 0.1, 0.001, 0.5, 1, etc. Each tick may be worth $10, $6.25, $1.25, etc., and represents a financial loss or gain. The tick’s size primarily depends on the asset being traded. For instance, swing trading E-mini futures change by a $0.25 increment, whereas crude oil ticks move by $0.01 increments.
Example
Let’s see how future swing trading works in practice:
If one party buys a futures contract at an agreed price of $50,000 and after several days the price increases by 1% ($500), their account will be credited with $500. This amount will be deducted from the seller’s account, meaning that for one party to profit, the other party must make a loss.
Conversely, suppose the opposite happens where the price drops by 1%. In that case, the buyer will incur a $500 loss, which will be transferred to the seller’s account.
History of Futures Trading
Futures trading has been around for centuries. The earliest recognised futures exchange is the Dojima Rice Exchange which was established in 1730. As the name suggests, the focus of this exchange was the trading of rice futures.
Futures trading first commenced in the US in 1848, when the Chicago Board of Trade (CBOT) was formed. The CBOT rose to prominence following the connection of a group of US cities (Chicago, New York and others) by railroads, which reduced journey times from days to hours.
The first futures trading exchange in the UK was the London Metals and Market Exchange. This was established in 1877. Futures markets also saw large expansion during the 1970s. The Chicago Mercantile Exchange (CME) and New York Mercantile Exchange (NYMEX) started offering various futures, such as US Treasury bonds, stocks, stock indices and others. Commodities trading expanded to gold, silver and copper futures, and later palladium and platinum were added.
Futures Contracts
Futures swing trading is now possible in almost all financial markets, including forex (majors, minors and exotics), cryptocurrencies (e.g. Bitcoin (BTC) and Ripple (XRP)), plus commodities (e.g. gold, silver, oil and natural gas). It is also possible to trade futures contracts on popular stocks such as Facebook or AT&T, on markets like the National Stock Exchange of India (NSE) and the Nasdaq.
There are many popular futures assets, which can be traded via a range of strategies. 6E futures for the Euro are among the most popular, while the S&P 500 is also widely traded. In addition, E-minis are popular. These are electronically traded futures contracts that are a fraction of the value of their corresponding standard contract. This form of futures trading is popular as it risks less capital. E-mini futures are available on the same trading platforms and trading hours as their standard counterparts. It is also possible to use trading robots to enhance your game. Finally, there are futures for non-assets, like weather and volatility.
Once you choose the futures contracts to swing trade, take time to learn their market. This way, you can note factors that lead to price moves and master how contract expiration is scheduled.
Popular brokers such as Binance offer USDS-m futures trading at varying fee rates. All assets have different trading volumes and hours which can be viewed online at your chosen broker.
Alternatives
Many online trading brokers also allow investors to speculate on whether the price of an asset will rise or fall through spread bets and CFDs. These products are also financial derivatives; however, the trader does not take ownership of the underlying asset, they just speculate on the price. This works well if you want to trade commodities futures, for example, as you won’t have to make room for all that physical gold or copper.
Where Can I Trade Futures?
There are many brokers and exchanges in the US, UK, Europe and around the world that offer retail futures trading. Popular brands include Webull, NinjaTrader, Binance and Coinbase.
Trading hours, rules and fees will vary between different platforms. The assets offered and strategies supported will also differ, for example, gold and commodity futures, as well as currency futures, are available for trading at Zerodha through Kite. Read our online reviews and check YouTube and forums like Reddit for more information on each firm.
Getting Started
In practice, live futures trading is simple. As the investor, you select the asset you would like to speculate on, such as gold. When you trade futures, you are trading a standardised contract for a set size or unit, rather than the gold itself. Let’s say the contract size for gold is 20 troy ounces, and you buy one contract of gold futures. If the price of gold increases by $5, you will see a profit of $5 x 20 = $100. Futures can be traded both long and short.
When swing trading with futures, it is important that you develop and utilise a strategy that suits you. With that in mind, here are a few things to consider:
- Risk management – Traders may need to decide between making lots of relatively safe investments for low profit or going for potentially big wins while risking more significant losses. A great way to decide which of these works for you is to use a simulator or demo account and get a feel for what you are comfortable with.
- Leverage – Traders need to decide what level of leverage they are comfortable using. Leverage allows you to trade with more capital than you originally deposited. Whilst this can potentially increase profits, it may also magnify losses.
- Markets – It is important to decide which markets you want to trade futures in. You can select one or trade multiple but make sure you have an idea of which you prefer so that you focus your time accordingly and plan your strategy.
Choosing A Broker
With many futures trading brokerages available in 2024, picking the right one can be difficult. To help compare the best options, use this guide:
- Fees – One of the most important factors when choosing a futures broker, particularly when swing trading, is fees. Overnight rates (swap fees) could come into play as you hold a contract, so always check what each broker charges. In addition, make sure to check typical spreads and any commission charged.
- Minimum deposit – Try to find a broker with a minimum deposit requirement that you are comfortable with. You do not want to open an account with a provider who wants you to put down more than you are willing to risk.
- Customer support – Customer service can make or break your futures trading experience. If you encounter issues while trading with a broker with low levels of support, it could take weeks for them to be resolved. With that in mind, try to find a broker with responsive customer support offered at hours that work for you.
- Trading platforms – Check which trading platforms each broker uses: do they offer bespoke software, or do they use a third-party solution like MetaTrader 4? You want to choose a provider with a platform you feel comfortable using and can understand. It is also worth checking to see if the platform is available on a mobile app, for those who intend to trade on the go.
Reputation
Other important considerations include:
- Reviews – Ideally, you want to use a broker with at least three years of experience. You should also check customer reviews to avoid any nasty surprises. Swingtrading.com provides comprehensive reviews of popular futures brokers. These break down everything you need to know about a brand or exchange, from fees to payment methods. YouTube and Reddit are also good sources of information, directly from customers.
- Regulation – Traders should always ensure they are trading with a trusted and regulated broker with robust security protocols in place. Some local bodies such as the US Commodity Futures Trading Commission will ensure that compliance requirements are being met. Traders can also carry out an entity search on the relevant regulatory register to check the legitimacy of the brand.
Choosing A Platform
Some brokers choose to offer bespoke software for futures trading, while others use third-party programs. Here, we cover some of our top picks:
- MetaTrader 4 – As one of the most popular retail trading platforms, MetaTrader 4 (MT4) offers intuitive and advanced features for all experience levels. Trading futures with MetaTrader 4 is simple, with a suite of smart technical tools and charting packages available. The software is designed with forex in mind, though it can also be used for CFDs and other instruments, such as futures.
- MetaTrader 5 – MetaTrader 5 (MT5) is the successor to MetaTrader 4 (MT4) and contains a portfolio of updated platform features, including additional order types and charting tools. Whilst the terminal is better suited to more advanced swing traders, it can be ideal for all investors, including those interested in automated futures trading strategies.
- Thinkorswim – Thinkorswim is a bespoke piece of software that was designed specifically with futures in mind. The platform is popular among a range of futures trading brokers, including TD Ameritrade. The interface and tools were created to provide the ultimate pro trading experience for all users.
MetaTrader 4
Product Comparison
Futures Vs Forex & Stock Spot Trading
Futures trading may seem similar to spot trading at first glance, but it is very different. The main difference is that spot prices are for immediate buying and selling, while futures contracts delay payment and delivery until a set date. This is why futures trading can occur at a lower price than the spot price.
Futures Trading Vs Margin Trading
Futures trading tends to use margin or leverage. Margin simply means the trader borrows assets or money from the broker to trade more than they would normally be able to. It is commonly used during futures trading to open multiple positions, increasing portfolio exposure.
Futures Trading Vs Options Trading
Futures and options are both financial derivatives, but there are key differences. With futures contracts, the buyer is obliged to purchase the asset at contract expiry, and the seller is obliged to sell it at the fixed price. With options, the buyer pays a premium and can choose not to fulfil the contract and purchase the asset, foregoing the premium in the process.
Advantages
These are a few of the main benefits of trading futures:
- Hedging of other investments is possible
- Halal in some Islam trading practices
- Range of popular financial markets
- Typically liquid markets
- Trade with leverage
- Low commissions
- Go long or short
Disadvantages
Potential drawbacks to trading futures include:
- Unplanned events can drastically affect prices
- Price fluctuations can be larger than expected
- Fees can add up
Top Swing Trading Futures Strategies
The futures market provides many opportunities. However, making a profit when swing trading futures requires you to utilize a tested strategy to help you monitor the market and make profitable investment decisions. The following are some of the best strategies for beginners and experienced investors:
Breakouts
This strategy enables swing traders to benefit from changing market patterns. Breakouts occur when the price of the underlying asset goes beyond resistance or support levels. Typically, a breakout is indicated by a rapid increase in open interest and trading volume. As a result, traders use them as supporting signals for swing trading futures.
The best way to benefit from this strategy is to go long when asset price breaks above its resistance zone and go short when it breaks below the support level.
Momentum
This strategy is based on futures contract price pullbacks that occur when an asset price hits the support or resistance zone and reverses its trend direction. Price pullbacks usually occur when swing traders start to take profits, pushing the futures’ price in the reverse direction of the past trend.
Futures swing traders often wait for the asset price to reach the resistance or support zone to enter the trade at a favorable price. However, it’s essential to be patient until the price signals an opposite impulse wave and moves in the pattern direction before you enter the trade.
Mean-Reversion
This futures swing trading strategy is centered on the notion that statistical variables possess a central tendency. As a result, they cluster within the mean. That being the case, swing traders using this strategy to assume that asset prices make biased moves to both sides of the average prices but revert back to the mean.
The down and up swinging continues, creating a tradable opportunity that an investor can take advantage of using several tools and indicators. The main issue is finding when the price is overbought or oversold and will probably reverse back to the mean. Some indicators used to find the overbought/oversold situations include moving averages, Bollinger Bands, and RSI.
Futures Trading Tips
Study the Basics
Any type of trading has its risks. Therefore, you shouldn’t invest your money blindly. Take the time to learn critical concepts about futures contracts, including how they work and how to engage in profitable swing trading futures.
The best thing is that you don’t have to pay a penny to learn how to trade a futures contract. You can access free learning materials online to help you understand key elements.
Alternatively, suppose you lack adequate time to analyze and learn about markets. In that case, you should consider subscribing to a futures swing trading signals service. These will provide you with helpful alerts, informing you when to buy or sell.
Bots & Signals
Like all forms of trading, futures contracts can be automated using bots, like those developed by 3Commas. These futures trading bots run on algorithms and can potentially increase the success of trades. This, however, is never guaranteed. To avoid any scams, traders should always thoroughly research any automated trading tools before risking funds.
Demo Account
One of the best ways to learn is to open a free practice account. Many brokers offer these, as they present an excellent way to practise skills and strategies before investing in a live account. The demo account gives all the same data and quotes as the real deal, the only difference is that you trade with virtual currency.
Keep A Record
To keep track of futures trading investments, many traders use a journal. Excel spreadsheet templates can be found online that will help you easily keep a record of the trades you make, as well as the profit and loss from each trade over the long term. This can help you refine your swing trading strategy.
Trading Hours & Holidays
Trading hours and holidays vary between different stock markets, time zones and even brokers. Some firms offer weekend trading or hours on Sunday, whilst others won’t. Check the websites of different markets, like the US Treasury futures at CME, to find holidays and trading hours relevant to you.
Note, crypto futures can be traded 24 hours a day, 7 days a week (24/7) on many exchanges.
Futures Trading Education
There is a wealth of resources out there designed to teach people about live futures trading. There are specific trading courses available, such as those created by XLT, including strategy courses and PDF guides to E-mini and crypto futures.
Additionally, there are YouTube courses dedicated to the strategies and methodology for both futures and options. Various websites such as TradingView also provide 1-minute charts and graphs representing the historical performance of futures contracts, which are a great way to learn how markets fluctuate.
There is also a variety of other sources including books, magazines and newsletters. In addition, podcasts are a good source of various futures topics and trading related news stories.
Today, instead of seeking a mentor, traders can also join online forums, find discord servers, and chat with investors about their experiences and trading tips. The S&P even has a futures trading group, reviews of which can be found online.
Final Thoughts
Futures trading is an exciting way for investors to speculate on the price movement of assets. Futures products can be traded on almost any market, including forex, cryptos, commodities and indices. Of course, as with all trading, futures contracts carry their own risks despite the benefits. If you want to start trading today, you can search for suitable platforms on our brokers page.
FAQ
What Is Futures Trading?
Futures are derivative financial contracts between a buyer and a seller, where an asset is exchanged at a fixed price on a future date. With futures contracts, the buyer is obligated to purchase the underlying asset, whilst the seller must sell at the contract expiry.
What Is A Futures Trading Account?
A futures trading account lets you trade futures contracts. Some brokers merge this with a standard live account, while others require it to be set up separately. Before signing up, make sure to check any required criteria, such as minimum deposits and fees.
Which Countries Allow Futures Trading?
Many countries allow investors to open a futures trading account with different brokers and on a range of platforms. Futures trading is typically allowed in the UK, Germany, Australia, Singapore, South Africa, Malaysia, Canada, Indonesia, India, New Zealand (NZ), the United States (USA), and many other countries. Note, in the UK, there is a ban on crypto futures trading on sites such as Binance.
Are Futures Trading Profits Taxed?
Futures trading is subject to tax in the UK, US and most countries, but rules will vary depending on your jurisdiction. Check your local legislation for any wash-sale rules and use a profit and tax calculator to work out your legal obligations.
Is Futures Trading Gambling?
Technically it is not, but futures trading is similar to gambling when you lack a clear plan and strategy. It involves lots of risks and the potential for large capital losses. Use a free paper trading account to hone your strategy before risking cash.