Futures Trading for Beginners
Get started trading futures with our introductory guide.
Learn futures basics, explore markets, and find strategies and educational resources.
What are Futures?
A future is an agreement between two parties to buy or sell an asset at a specified quantity for a predetermined price on a certain date in the future.
Let’s break that down:
- Agreement - An agreement is a contract joining two parties for the future exchange of money for a product. That said, the agreement itself is essentially a proxy for the transaction itself; you don’t have to sign anything to trade a futures contract. Buying futures profits from the market moving higher, while selling them profits from the market declining.
- Asset - An asset is anything people want to invest in, hedge against, or speculate on, as related to trading. Specific to futures, assets can include energy, metals, equities, and currencies. Recently, asset classes such as cryptocurrency and cannabis have emerged as their markets gain popularity.
- Quantity - A quantity, or multiplier, is the amount of the asset that will be executed at the futures price. Historically, futures quantities were based on concrete figures, such as bushels of corn. Today, they can be viewed as a static dollar amount that, when multiplied by the futures price, gets you the total notional exposure of the product. For example, most Small Exchange® futures are simply $100 times the price.
- Date - The date, or expiration, is a predetermined date and time when the future settles to the asset or cash. Similar to options, futures can transform into the underlying asset or cash at expiration. All Small Exchange futures products settle to cash resulting in a realization of the profits or losses from the position at expiration, and many traders completely avoid expiration by closing the position or rolling it to the next expiration before settlement.
Types of Futures Markets
The first recorded futures contracts were exchanged between farmers of agricultural products and merchants looking to sell the product. Both parties agreed to a price that would be paid in the future while the product was still in the ground. While futures carry the same concept today, most modern traders use them to speculate on assets with lesser capital consumption relative to shares of stock or ETFs.
Common assets traded as futures contracts include:
Futures have evolved to give people the ability to access traditional markets like stocks and bonds as well as innovative markets like cryptocurrency and cannabis. The Small Exchange creates its proprietary futures markets using three central tenets: Small. Standard. Simple.®
Small Exchange futures provide cost and product sizes that are smaller than traditional futures. They are designed in a relatively standard manner, by which you can see a similar tick size, expiration, and other specifications shared among many Small futures. Finally, the Smalls are meant to offer simple, direct exposure to markets.
The Small Exchange suite of markets combines all the advantages and opportunities of traditional futures with a small, standard, and simple structure designed for today’s traders. You can access stocks, bonds, commodities, cryptocurrencies, and many more asset classes in a Small futures product that looks and feels like 100 shares of stock but can be more efficient with your capital and easier to access.
After recent movements to decrease size and increase usability, futures have become prime candidates for investment, hedging, and day trading speculation among everyday traders looking for a more efficient application of their capital.
Find a Futures Broker
To access Small Exchange futures, you will need a futures trading account. Choose a broker that fits your investing needs. While reviewing firms, some items to consider: Does the firm offer easy-to-use technology (trading platform and application)? Are the commissions and fees competitive? Does the firm offer the markets you would like to trade?
Once your account is open and futures enabled, you’re ready to start trading the Smalls! Simply search the symbol for the market you wish to trade, and send a buy or sell order following your opinion of the market. Trading platforms may use different symbols than the exchange, so be sure to use the symbology specific to your broker.
How Futures Compare to Stock and Options
Futures are known for both their cheap capital requirements and their ease of access to both buying and selling several assets relative to stock. This can make futures products a primary destination for short-term speculation, or day trading. Small futures can help those new to futures try out their opinions and strategies given the products’ small size and simple structure compared to traditional futures. Many people might start by simply buying one of the smaller products for a few moments only to sell it back for a slight profit or loss.
Those coming from trading stock can think of buying or selling Small futures the same as buying or selling 100 shares but for relatively less capital and a more diverse stretch of assets.
Those coming from the world of options might liken futures to 100 deltas that do not rise or fall with any Greeks. Buying a futures market is like buying a call without the premium while selling futures can be like buying a put without the premium.
Build Your Knowledge with Futures Trading Education
Need a succinct guide to getting started with futures? Download our Beginner’s Guide to Futures!
Looking for a more visual approach to learning futures? Peruse our YouTube Channel including hundreds of videos ranging from basic information to advanced strategy, and don’t forget to subscribe!
Find even more futures education from us and our participating brokers:
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