How to begin trading futures in the UK
For those looking to venture into the world of futures trading, you should know a few things before getting started. We will discuss the basics of trading futures in the UK and provide tips on how to get started. So, if you’re ready to learn more, read on.
What are futures contracts, and why trade them?
A futures contract is an agreement to purchase or sell an asset at a future date, at a price agreed upon today. Farmers and producers typically use futures contracts to hedge against price volatility, but they can also be traded speculatively.
The key benefit of trading futures is that you can take advantage of price movements in the underlying market without taking ownership of the asset. For example, if you think the price of crude oil will rise, you could buy a futures contract, and if the price rises, you will make a profit.
How to open a trading account with a UK-based broker
If you are based in the United Kingdom and want to start trading futures, there are a few things you need to do. First, you’ll need to find a broker that offers futures trading. Many online brokers offer this service, so take some time to compare their fees and offerings before choosing one.
Once you have selected a broker, you must open an account and deposit funds. Most brokers will require you to meet a minimum deposit before starting trading.
Next, you will need to choose a futures contract to trade. There are many different types of contracts available, so selecting one that suits your needs is vital. For example, you could buy a Brent Crude Oil Future if you want to trade crude oil.
Once you have selected a contract, you must decide how much of the underlying asset you want to purchase. It is known as the position size.
Lastly, you will need to place your order with your broker. Once your order is filled, you will be entered into a contract and will be required to make payments on the agreed-upon date.
Trading strategies for beginners
Different trading strategies can be used when trading futures. However, for beginners, we recommend using a long or short position.
A long position is an order to buy the underlying asset. If the price of the asset increases, you will make a profit; however, if the price decreases, you will incur a loss.
A short position is an order to sell the underlying asset. If the price of the asset decreases, you will make a profit; however, if the price increases, you will incur a loss.
When placing your order, you must select the number of contracts you want to trade. One contract is equal to one unit of the underlying asset. For example, if you are trading crude oil and each contract is for 1,000 barrels, you would need to purchase 1,000 contracts if you wanted to trade one million barrels.
The size of your position will also determine the margin you will need to post. Margin is the amount of money you will need to put down to open a position. The initial margin is typically around 10-20% of the contract’s total value. For example, if you are trading a contract worth £100,000, you may be required to put down £10,000 as a margin.
What to do if you experience losses while trading futures
If you experience losses while trading futures, it is essential to remember that you are not alone. Many traders go through periods of losses; the key is to learn from mistakes and continue to trade.
One way to limit your losses is to use a stop-loss order. It is an order that will automatically close your position if the asset’s price reaches a certain level. For example, if you have a long position in crude oil and set a stop-loss at £50 per barrel, your position will be closed automatically if the price falls to that level.
Another way to limit your losses is using risk management tools such as margin and position limits. Margin limits allow you to set the maximum amount of margin you are willing to risk on a trade, and position limits allow you to set the maximum number of contracts you are willing to trade. These tools can help you limit your losses and protect your capital.
