If you want to start trading futures or switch brokers, visit NinjaTrader.
Futures trading could be a profit center for investors and speculators, as well as a good way to hedge your portfolio or reduce risks. Similar to any speculative market, it isn’t right for everyone, particularly the risk adverse. But if you’re seeking a fast-moving investment opportunity, futures trading may be a good deal.
Best Futures to Trade
You’re wondering, what are futures? A futures contract is an agreement between two parties to transact a commodity or security at a fixed price at a set date in future. A huge majority of futures don’t actually result in the delivery of the underlying commodity or security. Most futures transactions are entirely speculative, so it is an opportunity to hedge risks or profit.
Finding the best futures to trade is the first step toward maximizing the potential of your assets. Choosing a futures broker is just the tip of the iceberg for futures trading. You also need to choose a suitable product or market, determine the appropriate size of your trading account and create a trading plan.
There are many types of futures contracts to choose from. The right one for you might not suit another trader. Besides, markets have individual personalities and are as diverse as those who trade them. Keep the following important attributes in mind when selecting a market to trade:
- Volatility. Some futures contracts regularly experience a broader daily trading range than others, and are therefore considered more volatile. Volatility is a crucial variable in determining the risk and profit opportunity. You may prefer more volatile contracts since the potential for profit is greater. The transactional cost essentially remains the same. Others may find the least volatile contracts best suited to their strategies since higher volatility increases the potential for loss.
- Liquidity. When you’re getting started, choose products that are highly liquid. Trade in active markets where there’s sufficient volume for you to enter or exit your orders without greatly affecting price. This will help ensure you can exit a position as easily as you entered.
- Contract size. Pick a contract size that’s appropriately sized for your account and specific trading style. You may choose between the standard contract size and a smaller version known as an E-mini. E-mini contracts are traded electronically, are highly liquid and require a lower initial margin. You could also choose micro E-mini contracts, which are smaller.
Here are some of the best futures to trade.
Eurodollar futures are the most traded of interest rates globally. They provide a valuable and cost-effective financial instrument for hedging fluctuations in the U.S. dollar interest rates. Eurodollars are simply U.S. dollars that are deposited in commercial banks outside the U.S. Some of their benefits include:
- Lower transaction costs
- Price transparency
- Unsurpassed liquidity
- Diverse trading opportunities
Today, about 98% of Eurodollar futures are traded electronically on the CME Globex trading platform.
E-mini S&P 500 Futures
Denoted by the ticker symbol ES, E-mini S&P 500 futures are a great option if you want to add or manage your exposure to large-cap companies in the U.S. stock market. They give an efficient, liquid and cost-effective way to gain market exposure to the S&P 500 Index, which tracks 500 of the U.S. economy’s largest companies. Some of the benefits of ES futures include:
- Deep liquidity
- Flexible execution
- Central clearing reduces your counterparty risk
- Trade a global equity index portfolio
Crude Oil Futures
Crude oil futures are the most efficient way for you to trade the global oil markets. The NYMEX WTI — the most actively traded crude oil contract — trades close to 1.2 million contracts per day. To understand, 1 contract = 1,000 barrels and is valued at nearly $44,740. NYMEX WTI futures give you direct exposure to the global oil market — a great advantage over other ways to trade. You can trade crude oil futures if you fall in these 2 categories:
- Hedger. You can use these futures to reduce the impact of potential adverse price changes on the value of your oil-related assets.
- Speculator. You can use crude oil futures to express and seek to profit from your views of the direction of oil prices.
10-Year Treasury Note Futures
U.S. Treasury futures are an efficient way to trade the U.S. government bond market, which offers the greatest security and diversity among government bond markets worldwide. These deeply liquid futures provide efficient tools for potentially enhancing income, hedging interest-rate risk, spread trading, speculating on interest rates and adjusting portfolio duration.
You should trade Treasury futures for these reasons:
- Deep liquidity
- Flexible execution
- Central clearing provides safety and security
- Control a larger notion value for a small amount of capital
Micro E-mini S&P 500 Index Futures
Micro E-mini futures are 1/10th the size of an E-mini contract. They give you a simple, cost-effective way to trade in the equity index markets. These futures manage your exposure to the 500 U.S. large-cap stocks. The benefits of trading these equity index futures include:
- Trading a portion of the most liquid equity index futures
- Greater versatility in your trading strategies
- Control a huge contract value with a small amount of capital
Best Brokers for Futures Trading
Before placing your 1st futures trade, you need to open an account with a registered futures broker who will maintain your account and guarantee trades. In the futures business, brokerage firms are known as either an introductory broker (IB) or a futures commission merchant (FCM). Securities brokers are also licensed to deal with futures. You’ll want to see whether your current broker provides this service.
Here are Benzinga’s suggestions for quality brokerages for futures trading.
Trading futures on TD Ameritrade gives you access to over 70 futures products available 24 hours a day, 6 days a week. The brokerage requires a $1,500 account minimum and charges a $2.25 fee per contract plus specific exchange and regulatory fees.
You won’t pay any daily carrying fee for the positions held overnight. The cutting-edge thinkorswim platform provides an integrated futures trading experience that lets you manage and execute trades fast.
TD Ameritrade also offers comprehensive education to futures traders. You can explore videos, articles, webcasts and in-person events on multiple futures topics. You can also use futures options on futures in a brokerage account and futures in an IRA account if you’re a qualified investor.
Interactive charges the lowest commission on futures trades — $0.85 — compared to other brokers. The brokerage also boasts the lowest margin rates of 1.91% to 1.41%.
Knowledgeable traders can access a fully configurable platform that offers over 50 order types. You can gain insights into worldwide markets with the firm’s daily interest rates and futures arbitrage tables.
As for education offerings, you can visit the Traders’ Academy where you can listen to a host of webinars and short videos. Unfortunately, you need a $10,000 minimum deposit to open an account.
Getting started with TradeStation is as easy as choosing an account type, entering your personal information, answering a few questions and agreeing to the terms of service. The company offers 2 account types: TS GO aimed at rookie traders and TS Select meant for the more seasoned traders.
You don’t need a minimum account balance for TS GO. The TS Select account requires a $2,000 minimum account deposit. Round-the-clock trading gives you access to over 150 futures products with no hard-to-borrow or short sale restrictions.
TradeStation also has a vast education offering if you want to learn more about futures trading.
NinjaTrader lets you keep your futures trading costs on the low through discount commissions and low margins. The brokerage commissions start at $0.09 per micro contract and margins are only $50 for micro E-mini futures.
The minimum opening account balance is $400. NinjaTrader also boasts an ecosystem of 3rd-party vendors who provide trading strategies, indicators and apps for endless customization. The company also supports all futures trades with unlimited simulated futures trading, unfiltered professional market data, extensive historical data and a 24-hour emergency trade desk.
You can enjoy the lowest commissions on futures trades by acquiring a lifetime license.
Tradovate offers membership pricing and commission-free trading. You’ll get an integrated experience you can carry seamlessly across any device whenever you want it.
Tradovate is the online futures and options brokerage where you can get technology-centered service on any screen size and any platform. Download for Windows or Mac, log in with Google Chrome and other web browsers, or download from the app stores for iPad, iPhone, and Android.
Tradovate delivers a seamless futures trading experience with 1 app to fill all your needs. It also gets rid of fragmentation with your software, brokerage and FCM all bundled.
How Do You Get Started?
Futures provide a fast and cost-effective way to access financial and commodity markets around the clock. Once you’re ready to start trading futures, begin with simulated trading to become familiar with market terminology, price quotations and the general behavior of a specific market.
Futures trading is just a matter of sticking with your trading plan, knowing the size and number of contracts you are going to trade and understanding your risk. Don’t get emotionally tied or involved in a trade.
Are you interested in learning more about futures? Head over to Benzinga's Futures & Options Courses.
Related Link: EURODOLLAR FUTURES