Navigate Market Volatility: How to Trade Futures in 2024
Futures trading has become a growing market for speculators looking to make gains during times of volatile market movements, offering the opportunity for traders to speculate on the future price of everything from crude oil and gold to major stock indices such as the S&P 500.
For instance, the price of a crude oil futures contract can be locked in today and paid for even months later, while a futures contract on wheat can allow a farmer to hedge the crop price against weather conditions.
Want to Trade Futures?
So, exactly how is this done? And what are the risks? The following guide will take you through the process of trading futures effectively, illustrating examples from markets as diverse as the S&P 500 stock index, crude oil, and wheat futures.
By the end of this article you’ll be well equipped to trade futures yourself.
1. What Does It Mean to Trade Futures?
When you trade futures, you’re buying or selling an agreement to buy or sell an asset at a certain price on a certain date in the future. Futures contracts cover everything from commodities such as crude oil to financial indices such as the S&P 500, and even currencies such as EUR/USD.
For example, a trader may predict that the price of crude oil will increase in the coming months because of geopolitical tensions. They can buy an oil futures contract today, hoping to sell it at a higher price later on.
– A wheat farmer might be tempted to sell wheat futures to lock in a price and hedge against a strong harvest season that brings down crop prices. It guarantees the farmer a price while exposing the buyer of the contract to the risk of the wheat price falling.
Risk: Should the market move against your futures, it can result in large drawdowns.
2. Why Trade Futures in 2024?
The world in 2024 is full of great futures trading opportunities. Gold futures are of interest because of inflation fears, while futures on indices like the Nasdaq are of interest to those who want to bet on the movements of tech stocks. And, of course, some of the most important futures are oil futures, because of geopolitics and supply issues.
– Why trade futures? Futures enable traders to take both long and short positions on the market, which means they can speculate on rising and falling markets. A trader who expects the S&P 500 to fall can, for example, sell futures on that index, and make money if the market does fall.
– Risk: They have the possibility of enormous gains, but also of swift price swings, brought on by events such as trade wars, weather, or government policy changes. If you don’t keep up, you can lose big.
3. Step-by-Step Guide: How to Trade Futures
Step 1: Select a Trusted Broker
The first thing you need to do before you start trading futures is to select a good broker. Your broker should give you access to all the key markets – commodities, indices, and currencies – and should provide you with advanced trading tools. Another requirement is a good education. Luckily, VPTrade has all these features available to its customers, along with educational resources to help you get started.
A trader could, for instance, connect to a service such as VPTrade in order to obtain access to real-time data and sophisticated charting software that could help her to decide whether to buy or sell oil futures or gold futures.
Step 2: Understand Margin and leverage when you want to trade futures
It is leverage that makes futures trading possible, allowing you to control a large position with a small amount of capital traded. For example, trading a gold futures contract valued at $100,000 might require you to put up a margin deposit of only $5,000. This strategy magnifies both gains and losses, so leverage must be managed prudently.
– Always watch your margin levels, as a sudden price move could trigger a margin call: you might have to add more money to your account or risk the liquidation of your position.
Step 3: Trade futures – Research the Asset You’re Trading
No matter if you are trading crude oil futures, stock indices, or corn, what matters is an understanding of what is driving and influencing price movements. Oil prices are impacted by how much OPEC decides to produce; corn futures can be moved by seasonal weather patterns and crop yields.
-For example, if you think the coming winter is going to be bad enough to send natural gas prices up, you might buy natural gas futures and then reap the benefits when the cold moves demand for heating fuel up.
Step 4: Trade futures – Implement Risk Management Strategies
It is vital to establish a risk management plan. Set stop losses to limit losses. This is essential in volatile markets such as oil or crypto, where prices can swing violently in a few hours.
For example, a trader who is long the crude oil futures could set a stop-loss order 5% below the entry price, in order to stop losses if the market unexpectedly tumbles on the back of an oil glut.
4. Key Benefits and Risks of Trading Futures
When you trade futures, it’s essential to weigh both the benefits and risks:
– Benefits: Not only are their orders fulfilled by a broker, but they are also very liquid, meaning markets make it easy to get into and out of positions, and positions can be leveraged, meaning traders can control large contracts with small amounts of capital, which in turn allows for the potential for large returns.
– Risks: Leverage is a two-edged sword. Leverage can magnify trades, sure, but it can also lead to massive losses. For instance, if a trader uses leverage to buy wheat futures, and the market falls, then that trader could find themselves losing more than they bet. On top of that, futures markets are also subject to external factors such as geopolitical tensions, changes in economic policy, or natural disasters, which destabilize the market.
Why Trade with VPTrade?
VPTrade is a complete futures trading platform for advanced tools, low commissions, and access to global markets with real-time data and risk management features to execute trades in the ever-changing markets.
5. Best Practices When Trading Futures
Diversify Your Trades
Diversification is perhaps the key to ’hedging’ risks in those who trade futures. Scattering your trades over different asset classes, including commodities, indices, and currencies, helps to offset the risk of a downturn in one market.
– A trader who was long both gold futures and corn futures, for example, might hope that, if one market declined, the gains in the other might offset it.
Use leverage carefully.
Leverage can magnify returns, but it can also magnify risk. Use it judiciously and don’t over-leverage: even a slight adverse price move can wipe out your entire stake.
Stay Informed on Market Developments
There are many things that can influence futures prices other than the spot price. The weather forecast affects commodities such as wheat and corn. Geopolitical tension affects oil prices. It’s important to stay on top of the news and trends.
6. Popular Futures Markets for 2024
There are several popular futures markets to consider:
– Commodities: Oil, gold, and natural gas still dominate the leaderboards, because of their price sensitivity to global supply and demand factors. Gold futures, for example, are purchased as a hedge against inflation, while the price of oil futures reacts to geopolitical developments.
– Indices: the futures on the S&P 500 and the Nasdaq are traded and are a way to gain from the direction of the general stock market.
– Currencies: Futures in forex (ie, foreign exchange), such as EUR/USD or GBP/USD, allow one to speculate on the movements of a currency against another, which are often correlated with central bank policies and international trade flows.
7. When to Trade Futures for Maximum Impact
Futures markets trade almost around the clock, except for weekends, but liquidity and volatility change considerably during the day. For commodities such as oil, for instance, you might get the most liquidity in US trading hours, whereas currency futures are more active during the crossover between European and US trading hours.
Futures trading is a great way to hedge your risk or speculate on the direction of the market. However, it’s important to understand the opportunities and risks of the markets you are trading in. If you follow this guide and use sound risk management techniques, by 2024 you will be ready to trade the futures markets. Platforms like VPTrade provide the tools and resources you need to trade with confidence, either in crude oil, stock indices, or agricultural commodities.
Disclaimer:
The information presented herein have been prepared by VPTrade and does not intend to constitute Investment Advice. The Information herein is provided as a general marketing communication for information purposes only.
Materials, analysis, and opinions contained, referenced, or provided herein are intended solely for informational and education purposes. Personal Opinion of the Author does not represent and should not be construed as a statement, or an investment advice made by. Recipients of this information should not rely solely on it and should do their own research/analysis. Indiscriminate reliance on demonstrational or informational materials may lead to losses. Past performance and forecasts are not reliable indicators of the future results
Therefore, VPTrade shall not accept any responsibility for any losses of traders due to the use and the content of the information presented herein.