If you’re looking to trade futures, what better knowledge would you need aside from knowing all about the environment it’s traded in?
Allow us to walk you through the American Futures Market in this post.
So, let’s go and get started!
What are US Futures?
US Futures are the very same derivative financial contracts that futures are, but only exclusive to the United States, of course.
A Futures contract requires traders to either buy or sell the asset. This asset may either be a physical commodity or a financial instrument.
The catch is that they will do so on a predetermined date and price. This date may be anytime before the contract’s expiration date. And the price depends on the agreement of both parties.
What makes futures more interesting is that the asset must be sold for its set price once the date comes. This is regardless of its current market price, which gives the trader a solid 50% chance of making a profit.
How do US Stock Futures Work?
Let’s dig deeper into the whole stock market Futures idea.
These derivative investments are contracts that allow a trader to buy and sell an asset without owning it. All contracts come with expiration dates and sometimes even terms that both parties agree on.
They are very much like options. The only difference is that futures require you to make a trade with the asset within the contract’s validity. This means you can’t back out in the sight of negative signals like you can with options.
The whole idea of futures revolves around allowing a trader to lock in the price of the underlying asset. And when the expiration date comes, the trade will follow the set price. Regardless of how far it is from the current market price.
So if you set the asset’s price extremely low, and it skyrockets on the target date, the contract will oblige for the trade to be completed.
There are hundreds of kinds of futures in the American futures market. But they fall into two categories, physical futures and financial futures. A couple of them are:
- Commodities (ex. oil, gas, wheat)
- Stock Index
- Currencies (ex. British pound)
- U.S. Treasury
Traders who invest in futures generate their profits from leveraging off their position closing before the expiration dates.
Where are US Futures Traded?
Now let’s get into the main topic of the article, the American Futures Market.
There are hundreds of future exchanges. And most of them have been made electronically. But they all require a brokerage account for validity.
These are auction markets where traders are free to buy and sell futures regardless of whether their physical or financial. All trades are made through the creation of a contract with terms that will be discussed during the trading phase.
Examples of American Futures Markets are the New York Mercantile Exchange (NYMEX), the Chicago Mercantile Exchange (CME), and the Chicago Board of Trade (CBoT).
How Can You Trade US Futures?
Digging deeper, American Futures markets revolve around high leverage to make a profit.
Futures don’t require traders to put up with the value of the contract during the trading process. However, brokers must require an initial margin amount.
The common rule of thumb for the price is a quarter of the total contract value. But it can vary depending on some factors like the terms, the size of the contract, and the reputation of the investor.
Trading futures all depend on the strategy you choose. And although there are many of them out there, two specific strategies stand out.
The first one would be hedging. Hedging is a technique where investors use their futures investments to help “hedge” the future price risks that their current investments may receive.
Speculating, on the other hand, is taking advantage of the liquidity of futures contracts. One of our most popular xBrat Trading Strategies for this, is our xBrat Range Breakout. We have an extensive Playlist on YouTube showing how simple this strategy software is when trading US Futures, Check out some of the Videos HERE
Since they can be bought or sold until the contract expiration, they make trades to express their views on the current direction of the market.
Speculating investors do not own the underlying commodities, just like all futures traders. And neither do they intend to own them. They will only use this investment to trade offsetting futures, so they can eliminate their obligations to it.
Launched in the year of 1999, Nasdaq futures are one of the most popular derivative investments in the American Futures Market.
When trading Nasdaq futures, you may use either hedging or speculating strategies on its market index.
All Nasdaq futures contracts come from the Chicago Mercantile Exchange. And there are the futures instruments you may derive from their composite index:
- E-mini NASDAQ composite futures
- E-mini NASDAQ biology futures
- NASDAQ-100 futures
- E-mini NASDAQ-100 futures
Nasdaq trades widely use trading indicators or technical analysis. They may be extremely critical, like neural networks or simple price trackers and market trend indicators.
Moving on to the most followed kind of future, S&P is popular with investors and financial media. That’s because they are somehow an indicator of market movements.
These derivative contracts provide buyers with investment prices that rely on the perceived index future value of S&P.
Investors usually electronically trade these futures through micro E-mini and regular E-mini contracts. These are still listed and cash-settled in the very same Chicago Mercantile Exchange market and have a ticker symbol of ES.
These futures are widely popular since they are one of the few extremely liquid and traded futures in the American Futures market.
Dow Jones Futures
The Dow Jones Industrial Average is a popular market index. They are commonly hedged or speculated through financial Dow futures.
All futures contracts are products of the Chicago Mercantile Exchange and derive as E-mini Dow futures. Their ticker symbol is YM.
These contracts coordinate along with the standard measure to expire quarterly. Trades occur in the CME Globex exchange all throughout the day.
The Dow futures chart has a standard multiplier of 5. This inflates the value to add leverage to the trade itself. So this means that Dow futures follow a 5-1 leverage between the provider and the investor.