However, some brokers post the margin requirements as fixed prices instead of percentages. The margin requirements are determined by the futures exchange itself using some risk-based algorithms. Unlike the stock market that allows a 50% margin, or 25% for pattern day traders, the futures markets allow much lower margins - as low as 2-5% of the total value of the contract. Similarly, in the UK, the futures exchanges and brokers are regulated by the Financial Conduct Authority (FCA), while in Australia, the market is regulated by the Australian Securities and Investments Commission (ASIC). In the US, the futures markets are regulated by the Commodity Futures Trading Commission (CFTC), which is an independent federal agency that regulates the derivatives markets in the country - that includes all futures, swaps, and some kinds of options. The broker should clearly specify which government agencies regulate its operations in every country it operates in. While the process of choosing the right broker for futures trading may be difficult and confusing, especially for less experienced traders, the first thing you should check is whether the broker is, indeed authorized and a registered member of a futures exchange. There are several factors to consider when choosing the best online broker for futures trading. Factors to consider in choosing the best futures brokers for trading futures So, whether you’re looking for a full-service brokerage firm that has futures trading as just one of its services or a specialized futures brokerage firm, there are factors you should consider when checking the best online brokers for futures trading. The good news is that many of the big online brokerage brands you know for stock trading also offers futures brokerage services, but there are also specialized firms that offer only futures trading services. To gain access to the contracts traded on these exchanges, you need a reliable futures broker. However, the futures market can be volatile and illiquid, so it may not appropriate for inexperienced traders and investors who can be at a great risk trading on margin - a requirement for futures market participants.įutures contracts are usually traded on futures exchanges, and there are several of them all over the world such as the Eurex Exchange and the CME Exchange. This is because futures contracts allow market participants to place bets on future pricing and the direction of change in future pricing of commodities, financial products, and certain other assets and instruments. In other words, it is used to hedge risk.īut beyond hedging, many futures traders do trade futures contracts for speculation. The primary reason for agreeing, at the present moment, on the price at which the asset will be delivered in the future is to protect both parties from any unforeseen circumstances, which could affect the price of the asset in a manner that may be unfavorable to either the buyer or seller of the asset. So, a futures contract can be seen as a “buy now, pay and exchange later” kind of contract. What are futures, and how do you trade them?Ī futures contract is an exchange-traded derivative contract, which represents a legal agreement between two trading parties to buy and sell a commodity or financial instrument at a pre-agreed price however, the physical exchange of the asset and payment between the dealer and trader will happen on a future date. Interestingly, both institutional and retail traders can trade futures. Most recently, many futures exchanges have included Bitcoin futures. Initially, futures contracts were only for trading agricultural produce on paper, but the concept has expanded over the years to include a variety of different assets, including financial assets. Actually, the original Commodity Futures Trading Act was amended by the Futures Trading Act of 1982 and thereafter by the Commodity Futures Modernization Act in 2000. The Act established the Commodity Futures Trading Commission (CFTC). Last Updated on 11 September, 2023 by Samuelssonįutures trading began as early as the 1800s, but it wasn’t until 1974 that regulated trading started in the United States after Congress passed the Commodity Futures Trading Act to add federal oversight.
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