Table of contents:
- 1 The world of futures – you too can be a part of it
- 2 What are futures and what makes these trading instruments special?
- 2.1 BASIC PRINCIPLE OF FUTURES TRADING
- 2.2 DEFINITION OF FUTURES
- 2.3 The King’s Class
- 2.4 What is the difference between Futures and Options?
- 2.5 Where are futures traded?
- 2.6 What advantages does Futures Trading offer?
- 2.7 What makes a good futures broker?
- 2.8 PRODUCT RANGE OFFERED
- 2.9 TRADING APPLICATION
- 2.10 COST INCLUSIONS
- 2.11 CUSTOMER SUPPORT OF THE BROKER
- 2.12 Differences of the providers
- 2.13 When choosing a futures broker, you should also consider the following
- 2.14 Trading software of the Futures Broker
- 2.15 How Day-Traders.net can help you with a futures broker comparison
Futures traders are usually among those who demand the highest standards from their brokers and not every futures broker meets these standards. If you know exactly what you expect from your broker, you can use our website to make a comprehensive futures broker comparison.
You can refine your search through numerous filters and find the provider that perfectly matches your expectations. If your favorite broker is a partner broker of day-traders.net, you can also secure valuable credits and start saving right from the start.
The world of futures – you too can be a part of it
Futures are conditional forward transactions and another term for a future is forward contract. The beginnings of such futures transactions can be found in ancient times and already Romans and Phoenicians secured their shiploads and other valuable goods in this way.
The first futures exchange, which made regulated trading in futures contracts possible, was founded in Japan at the end of the 17th century and was called the “Domija rice market”. Although this way of trading has been developed over time, the basic principle of futures trading has not changed.
What are futures and what makes these trading instruments special?
BASIC PRINCIPLE OF FUTURES TRADING
The basic idea behind trading the futures was primarily to protect commodity producers from price fluctuations. For example, a potato grower could not know at the beginning of a year what price his commodity would fetch at the time of harvest. A drought could destroy the harvests, or overproduction could also occur, which could depress the potato price.
Now a buyer offers this farmer a fixed price for his potatoes at the beginning of the year and undertakes to pay this price after the harvest in any case. In return for this commitment, the buyer wants a sum of money which is a kind of insurance premium. In concrete terms, this could look like this: The buyer offers the farmer EUR 1,000 for every tonne of potatoes and would like to receive EUR 50 per tonne from the farmer as a premium. The farmer agrees, assures the delivery of 10 tons of potatoes and then pays the amount of 500 euros to the buyer. Now at harvest time the following situation could arise:
There was good weather all year round and the market is flooded with potatoes from different farmers. The price per ton is only 800 Euro. So the seller is unlucky and has to pay the originally agreed price of 1,000 euros. For the farmer, however, things look good. He has received an amount of 10,000 euros, which is 2,000 euros more than he would get by selling on the market. If you deduct the commission of 500 Euros, the farmer has a profit of 1,500 Euros.
So a future is basically a promise to buy a certain quantity of products at a certain price. But what happens when different buyers and sellers meet? Maybe one buyer only wants to buy five tonnes, but the other 22 tonnes. One seller offers 45 tons and another offers only three. Perhaps the seller wants to sell on 15 August and the buyer would like to receive the goods on 10 August. That is why the parameters of futures have been standardized over time.
DEFINITION OF FUTURES
Futures, or forward contracts, are tradable for all kinds of markets: stocks, stock exchange indices, bonds, commodities, etc. They allow speculation on both rising and falling prices, and are usually traded on margin. This means that you do not have to pay the full value of a contract to purchase it, but only a part of it, the so-called collateral. If the speculation does not work out, the broker can, in extreme cases, demand additional margin, or even close the position on his own initiative.
A futures contract is characterised by the following criteria:
- There is a clearly defined object of trade.
- The quantity of the object of trade is also determined (size of the contract)
- A price fixed in advance for the item to be traded can also be found
- A settlement date is determined in advance
- An indication of the method of settlement (delivery of the object of the trade or cash settlement) is also an integral part of such a contract
The King’s Class
Institutions and professional heavy traders with sufficient capital will not want to deal in leveraged products and CFDs, but only in futures and options. No detours, no middlemen, but direct, naked trading on the exchange itself.
The fact that you need to have well-filled pockets to do this is shown, for example, by the margin for the FDax: intraday margin must be at least €9,000 for a single contract, and anyone holding the position overnight cannot avoid double that amount. A single FDax contract moves 25 € per point price change. In comparison, 1 CFD typically moves €1 per point, and requires only €90 margin (25 CFDs to replicate an FDax contract would be €2,250).
What is the difference between Futures and Options?
In the context of futures one often hears the term options. These trading instruments are also futures, and in principle, options are similar to futures. There is, however, an essential difference. Whereas with futures, buyers and sellers must fulfil their contractual conditions, i.e. buy and sell at the agreed price, with options there is no obligation for either party to buy or sell. For example, a call order is subject to the right to buy and a put order is subject to the right to sell. Futures are called “unconditional forward transactions” and options are called “conditional forward transactions”.
Where are futures traded?
Futures contracts are traded on so-called futures exchanges and are based on a wide variety of underlying instruments. In this respect, a distinction is made between financial futures and commodity futures. Underlying assets of commodity futures include, for example, shares, foreign exchange, indices or even bonds. Commodity futures are based on commodities, precious metals or agricultural goods.
Quite a few people consider futures trading to be the supreme discipline of trading, and professional investors and institutions are the primary traders in these instruments. But private investors do not have to be denied access to futures either. On www.day-traders.net you will find brokers who offer trading in futures contracts and discover the best offer with our help.
What advantages does Futures Trading offer?
Investors can benefit from several advantages when trading in futures:
Liquidity: Futures markets are characterised by high liquidity. This means that the estimated spreads for these trading products are also particularly narrow, which makes futures trading very cost-effective.
Low order fees: In addition to the cost savings in spreads, the commissions of futures brokers are also generally low. The exchange fee is also not significant in futures trading.
Lack of slippages: Due to the liquidity and high volumes of the traded positions, orders on futures exchanges are executed immediately. As a result, slippages (price deviations) are virtually non-existent. Today, futures orders are usually executed fully electronically and without intermediaries.
The leverage effect: When trading in futures, the investor can manage the leverage himself. This means that he can open a position with minimal leverage at first – should the position develop profitably, the trader can increase the leverage as desired and thus determine the risk himself at any time.
What makes a good futures broker?
Where to open a position Basically, it doesn’t matter whether it’s a futures broker, a provider of forex trading or any other broker out there, there are some characteristics that distinguish a good broker from a bad one.
PRODUCT RANGE OFFERED
Those who want to offer their customers as much flexibility as possible in their day-to-day trading activities provide them with a large selection of underlyings. It is not only the number of underlyings that counts, but also their diversity. Every trader is different and while one trades foreign exchange as an underlying, another prefers the Dax Index – the third prefers commodity futures markets and trades commodities and precious metals. A good futures broker knows about the individual needs of his clients and tries to meet these needs by offering them an extensive selection of underlyings and constantly expanding his own range.
Since high volumes are traded in futures trading, the broker should provide his customers with a particularly powerful trading platform. Futures traders are usually not satisfied with half measures and have the highest demands on a broker’s trading platform. For example, numerous tools and indicators should be available that enable professional price analysis, the charting tool should ideally be state-of-the-art and order execution should ideally take place without slippages.
Even though trading in futures is characterised by low trading fees, there are also differences from broker to broker, some of which are significant. It is therefore worthwhile to compare the individual providers in terms of costs and fees.
CUSTOMER SUPPORT OF THE BROKER
A good broker knows how important customer satisfaction is and always strives to ensure it at all times. This includes friendly and competent support staff, a free service hotline, which is also available on weekends, and the quick processing of enquiries by e-mail or contact form.
Furthermore, a good Futures Broker supports its own customers with training offers in the form of seminars or tutorials and provides them with a comprehensive range of knowledge. Current news should not be missing either and a plus point is free market analysis and expert recommendations.
Differences of the providers
Compared to the mass of Forex and CFD brokers, the selection of reasonable futures brokers looks almost modest. Comparisons here make sense especially in terms of costs and expected service. Especially smaller niche players take advantage of the weaknesses of the market leaders and concentrate on the individual needs of the traders, in contrast to the large market leader Interactive Brokers.
When choosing a futures broker, you should also consider the following
If you follow the criteria described above when searching for a new trading provider, you will be able to gradually eliminate all unsuitable offers. However, there are a few more points that play a role in choosing a broker:
Does the broker offer a free demo account and how extensive is this?
How long is the demo account available and how much effort is involved in setting up such a test account?
What about the minimum deposit?
In which currencies can the trading account be managed?
What deposit and withdrawal options are available and are there any fees?
Trading software of the Futures Broker
As a rule, the platforms do not do things by halves, as they are intended to satisfy the highest demands. Therefore, you will hardly hear any complaints regarding the range of functions, but rather regarding the haptics. In addition to the broker’s platform, you can usually also access external software and simply connect it to the provider’s data feed. The broker comparison by means of a demo account quickly provides clarity here whether you can get along with the platform.
How Day-Traders.net can help you with a futures broker comparison
Before you decide on a futures broker, it is important to make a comprehensive comparison. You can either search on your own or use the free search service provided by day-traders.net. If you choose the first option, you will have to invest a lot of time and effort. Not all costs and conditions can be found at first sight and the search can be quite tough at times. If you choose day-traders.net, you can be sure to find a broker that meets your personal criteria.
We have taken over the tedious search for you and have picked out all the important aspects of the offers and presented them in a clear and concise form. In addition, you will find numerous evaluations of the brokers’ customers and can thus get a good overview of customer satisfaction within seconds. The heart of our broker comparison is the extensive and detailed search function and with the help of the filters you will find there, you will get closer to your ideal broker step by step. The Futures Broker Comparison is realized on day-traders.net in six steps:
STEP 1: COST COMPARISON
First you determine which trading instruments you want to trade, how often you want to trade and with what quantity. With our cost comparison you can then find the cheapest brokers with just a few clicks.
STEP 2: BROKER FEATURES
Here you decide whether you want to find a partner broker of day-traders.net, whether you want to have the possibility of scalping or whether the provider should have its own broker license.
STEP 3: TRADING PLATFORM
At this point you determine what you expect from the trading application. You specify whether you explicitly want MetaTrader, whether the broker should have a demo account and/or whether you want to find tick charts and hedging options.
STEP 4: ORDER OPTIONS
This is about the order possibilities. Do you want 1-click trading and trading from the chart? Do you want to find the off-exchange order entry for stop and limit orders and do you value multiple order windows?
STEP 5: CUSTOMER SERVICE
At this point, you determine what you expect from customer support – this includes, for example, the availability of webinars or English language telephone support.
STEP 6: OTHER
In the last step you determine what you want in terms of cost. This could be a free trading platform, free custody account management or free partial executions.
Once you have completed the above steps, day-traders.net will present you with a list of all futures brokers that match your selection criteria. This limits the selection to a few providers and makes the decision-making process much easier. If your preferred provider is one of our partner brokers, you can also benefit from a range of discounts by signing up through our website.
Read my other articles about futures:
- Bear Call Spread Options Strategy
- Bull Put Spread – Earn Money With Puts And Limit Risk
- Butterfly Spread Options Strategy
- Definition Of Option Price/Option Premium
- Earn Money With A Covered Call Options Strategy
- How to exercise Options
- How to use the Standard Deviation for Options Trading
- Iron Condor – Profit From Low Price Fluctuations
- Options Trading Tutorial for beginners
- Options vs. Futures – Two Different Types Of Futures Contracts
- Options vs. Warrants – 4 Differences
- Protective Put – Hedging Of Equity Positions
- Simple Trading Strategies for Options
- Term structure options
- What are options? – Explained Simply And Quickly
- What is a Long Call in Options Trading?
- What is a Long Put in Options Trading?
- What is a Short Call in options Trading?
- What is a Short Put in Options Trading?
- What is delta in Options Trading? – The Most Important Key Figure
- What is Historical Volatility in Options Trading?
- What is the Gamma in Options Trading?
- What is the Implied Volatility Of Options – Important Or Not?
- What is the Theta in Options Trading?
- What Is The Vega Of An Option?