Best Futures Trading Platforms
Learn the basics about investing in futures contracts. Discover several of the top trading platforms for buying and selling futures contracts.
Futures, or a futures contract, represents an agreement to buy or sell a specified asset for a set price at a certain period. In order to trade in futures, you need a specialized brokerage account. Futures are similar to another trading contract options. The biggest difference is options do not have the same guarantee as futures, giving the buyer an opportunity to pull out of the deal at the end of a contract. With futures, both the buyer and seller are required to commit to the sale.
While futures are more secure than options, this is not entirely a positive. Futures are considered safer because you know the deal will happen, but because the deal is set in stone, you cannot change the agreed upon price. If you are selling and your asset is more valuable at the time of sale, you must sell at the original price. Futures have the potential to be an excellent investment option, but it is important you understand exactly how the contracts work and what to look for when setting a contract.
Common Examples of Futures
Not all assets are good choices for future contracts. Most future contracts involves businesses that require specific items to operate. For example, the airline industry frequently buys future contracts for jet fuel. Because the cost of fuel varies so much, airlines will secure deals early when the price is low, but the actual purchase date may be months away. Many agricultural businesses also use futures contracts for both crops and fuel for farm equipment.
Precious metals and currency are also sold in future stocks. The price of both these assets can greatly vary depending on global finances, which are often difficult to predict. Some investors also create contracts with stock index options for the same reason. This requires more research. For example, if you know a profession is expected to see a rise in business, you can invest in a company stock, but set a later date so you are buying the stock after the company has seen a rise in value. Because you are setting the contract before the rise, the company is more likely to sell stocks at a lower rate. The company still benefits because it shows there is confidence in the business, which can attract other investors.
Advantages of Future Contracts
One of the biggest advantages of future contracts is it provides a greater level of safety. This is especially important for new investors, who are not experienced enough with the market to take greater risks with their assets. For many investors, one of the hardest parts of buying and selling commodities is knowing when to sell. While setting a sell date is part of creating a futures contract, there is much less pressure than other types of investments, and you have more time to think the decision over.
Future contracts also use a simpler pricing method than other investment options. Everything is spelled out in the initial contract, so there is no need to track and predict future fluctuations in prices. You always know the exact value of your contract. Once the buy or sell date approaches, you do not have to worry about renegotiating or risk not getting a payment. There are also many apps or companies that handle your futures, further reducing the risk and making it even easier to get involved in, even with no prior investment experience.
Disadvantage of Future Contracts
While the simplicity of future contracts is a benefit of future contracts, that same simplicity can also become a negative. Once you lock in your contract, you are bound by the original agreement. This means you cannot renegotiate for higher prices, even if your asset is in higher demand and increased in value. You are also unable to get out of the contract to negotiate with another buyer. With future contracts, you often end up waiting longer periods for a payout compared to other investments. Even if you are sitting on a highly sought-after commodity, you may end up waiting months before you get a payout depending on the length of your contract. Many investors end up stuck between investments because they need a futures contract to pay out before investing in another asset.
E*Trade is a great futures trading platform for both new and experienced investors. If you want to start investing in future contracts, you must have at least $25,000 in your account. E*Trade has a large client base, with several tools available to speak with other investors. There are also multiple guides to walk you through your initial investments. There are a number of research options and recommendations for starter investments. With an easy-to-use mobile app, you can check on your contracts on the go. The platform also allows you to put your investments directly into a retirement or IRA account.
InteractiveBrokers is considered one of the top futures trading platforms for experienced investors. In order to create an account, you need a balance of at least $100,000. While this is a steep price, it comes with many perks. Compared to other trading platforms, InteractiveBrokers is highly customizable, with many built-in research tools. You can set alerts to notify you about any changes, making it easier to select the best time to create a contract. Futures are divided into multiple subcategories, so you can narrow your focus to assets you are interested in. The platform also includes options for volume-based contracts. Because of the steeper account minimum, you are guaranteed to interact only with other experienced investors, who have enough capital for your contracts. There are also no hidden maintenance or inactivity fees to worry about.
Tastyworks is one of the newer futures trading platforms, but it has quickly gained tractions among investors. For newer investors, the biggest benefit of Tastyworks is the lack of any minimum balance requirements to create an account. The platform also places a greater emphasis on smaller contracts. There are also options to deposit your funds into a number of accounts, such as Roth, IRA, trusts and corporate accounts. There are minimal fees when creating a contract, with a maximum cap on higher priced contracts, ensuring you get the majority of profits from your futures.