Heartfelt Parents Day Wishes
Learn about the basic components of futures contracts and why you may want to consider incorporating them into your trade plan.
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- What are futures?
- Uses for futures
- Why trade futures?
- Types of futures
- Options on futures
- Why trade futures with Schwab?
Introduction Heartfelt Parents Day Wishes
Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price Pocket Option Strategy Blw . Futures contracts, or simply "futures," are traded on futures exchanges like the CME Group and require a brokerage account that’s approved to trade futures.
A futures contract involves both a buyer and a seller, similar to an options contract. Unlike options, which can become worthless at expiration, when a futures contract expires, the buyer is obligated to buy and receive the underlying asset and the seller of the futures contract is obligated to provide and deliver the underlying asset.
Uses for futures.
Futures generally have two uses in investing: hedging (risk management) and speculation.
Hedging with futures: Futures contracts bought or sold with the intention to receive or deliver the underlying commodity are typically used for hedging purposes by institutional investors or companies, often as a way to help manage the future price risk of that commodity on their operations or investment portfolio.
Speculating with futures: Futures contracts are generally liquid and can be bought and sold up to the time of expiration. This is an important feature for speculative investors and traders who don’t own the underlying commodity nor wish to. They can buy or sell futures to express an opinion about—and potentially profit from—the direction of the market for a commodity. Then, prior to expiration, they will buy or sell an offsetting futures contract position to eliminate any obligation to the actual commodity.
Why trade futures?
Individual investors and traders most commonly use futures as a way to speculate on the future price movement of the underlying asset. They seek to profit by expressing their opinion about where the market may be headed for a certain commodity, index, or financial product. Some investors also use futures as a hedge, typically to help offset future market moves in a particular commodity that might otherwise impact their portfolio or business.
Of course, stocks or ETFs can similarly be used to speculate on or hedge against future market moves. They all have their own risks you need to be aware of, but there are some distinct benefits the futures market can offer that the equities market does not.
Establishing an equity position in a margin account requires you to pay 50% or more of its full value. With futures, the required initial margin amount is typically set between 3-10% of the underlying contract value. That leverage gives you the potential to generate larger returns relative to the amount of money invested, but it also puts you at risk of losing more than your original investment.
DiversificationFutures provide a few ways to diversify your investing in ways stocks and ETFs can’t. They can give you direct market exposure to underlying commodity assets vs. secondary market products like stocks. Additionally, they allow you to access specific assets that aren’t typically found in other markets. Futures might also be used if you are looking for strategies designed to help manage some risk surrounding upcoming events that could move the markets.
Short SellingWith futures, the margin requirement is the same for long and short positions, enabling a bearish stance or position reversal without additional margin requirements.
Tax BenefitsFutures can provide a potential tax benefit compared to other short-term trading markets. That's because profitable futures trades are taxed on a 60/40 basis: 60% of profits are taxed as long-term capital gains and 40% as ordinary income. Compare that to stock trading, where profits on stocks held less than a year are taxed 100% as ordinary income.
Schwab does not provide tax advice. Clients should consult a professional tax advisor for their specific tax advice needs.
Types of futures.
The types of futures available to trade include a wide range of financial and commodity-based contracts, from indexes, currencies, and debt to energies and metals, to agriculture products. Examples of futures contracts available are below (not an exhaustive list).
Types of futures- Types
- Examples
Index contracts and interest rate (debt) contracts are two types of financial futures. Index contracts provide exposure to specific market index values, while interest rate contracts are used for exposure to the interest rate of a specific debt instrument.
- E-Mini S&P 500
- E-Mini Nasdaq
- E-Mini Russell 2000
- Mini Dow Jones
- E-mini Mid-Cap 400
- Micro E-minis (multiple indices)
- Bloomberg Commodity Index
- Nikkei 225 (CME)
- Volatility Index
- U.S. Treasury Bonds
- U.S. 10-Year Notes
- U.S. 5-Year Notes
- U.S. 2-Year Notes
- Eurodollars
- Federal Funds
- Ultra Bonds
- Euro
- British Pound
- Japanese Yen
- Swiss Franc
- Canadian Dollar
- Australian Dollar
- CME Bitcoin
- U.S. Dollar Index
- Brazilian Real
- Korean Won
- Mexican Peso
- New Zealand Dollar
- South African Rand
- Swedish Krona
Energy contracts provide exposure to the price of common energy products used by companies (for manufacturing, production, and/or transportation) and by governments and individuals for consumption purposes.
- Crude Oil
- Natural Gas
- Heating Oil
- Gasoline
- Ethanol
- Brent Crude Oil
Metal contracts provide exposure to the price of certain metals that many companies rely on as materials for manufacturing and construction (e.g., gold for computers or steel for housing).
Grain FuturesGrain contracts provide exposure to the prices of raw grain materials used for animal feed and for commercial processing into other products (e.g., ethanol and corn syrup), plus processed soybeans.
Livestock FuturesLivestock contracts provide exposure to the prices of live animals used in the supply, processing, and distribution of meat products.
Food & Fiber FuturesThese contracts provide exposure to the prices of specific agricultural products that are grown vs. extracted or mined (also known as Softs) and the prices of dairy products.
- Coffee
- Sugar
- Cocoa
- Cotton
- Orange Juice
- Lumber
- Milk
- Cheese
Options on futures.
An option on a futures contract works similarly to an option on an equity contract—you can even use some of the same options strategies. Trades in options on futures can include market neutral, multi-leg, and directional trades, depending on how you think the market will move and your risk/reward goals.
An advantage of options on futures is the ability to reduce risk in your portfolio in different ways. Whether you are looking to trade in an uncorrelated market to diversify risk, hedge existing positions to limit risk, or directly trade more volatile markets at a reduced cost versus the futures contract alone, options on futures can be a way to do this.
Why trade futures with Schwab?
Many types of futures to trade
Access a variety of futures products, including energies, metals, currencies, indices, interest rates, grains, livestock, and softs.
Expert commentary and researchGet market news and reports from industry-leading analysts, including Hightower, Wyckoff, Gramza, and more.
Live trade help from futures specialists Let our dedicated team of specialists review your trades and even place them for you. $2.25 futures per contract trade commission Pay the same commission online or through a broker 1 and your satisfaction is guaranteed. 2Open an account today
Open an account today Already a client? Start trading or apply online for futures approval.Have questions? We’re here to help.
1. Note: Commission rates depicted above are quoted on a per-contract, per-side basis. Pricing does not include customary National Futures Association (NFA) and exchange fees. Additional fees can apply at some foreign exchanges. NFA and exchange fees can increase or decrease depending on the rates set by NFA or by the various futures exchanges, as applicable. Additional market data fees can apply at some futures exchanges.
2. If you are not completely satisfied for any reason, at your request Charles Schwab & Co., Inc. ("Schwab"), Charles Schwab Bank, SSB ("Schwab Bank"), or another Schwab affiliate, as applicable, will refund any eligible fee related to your concern. No other charges or expenses, and no market losses will be refunded. Refund requests must be received within 90 days of the date the fee was charged. Schwab reserves the right to change or terminate the guarantee at any time. Go to schwab.com/satisfaction to learn what's included and how it works.
Futures and futures options trading involves substantial risk and is not suitable for all investors. Please read the Risk Disclosure Statement for Futures and Options prior to trading futures products. Additional CFTC and NFA public disclosures for Charles Schwab Futures and Forex LLC can be found here. Futures accounts are not protected by SIPC. Futures and futures options trading services provided by Charles Schwab Futures and Forex LLC. Trading privileges subject to review and approval. Not all clients will qualify.
Charles Schwab Futures and Forex LLC (NFA Member) and Charles Schwab & Co., Inc. (Member FINRA/SIPC) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation.
Options carry a high level of risk and are not suitable for all investors. Certain requirements must be met to trade options through Schwab. Investing involves risks, including loss of principal. Hedging and protective strategies generally involve additional costs and do not assure a profit or guarantee against loss. Multiple leg options strategies will involve multiple commissions. Please read the Options Disclosure Document titled "Characteristics and Risks of Standardized Options" before considering any options transaction. Supporting documentation for any claims or statistical information is available upon request.
This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.