What is Futures Trading and how does it work?

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Delve into the world of futures trading with the "Futures" course, a thorough educational series offered by Interactive Brokers and CME Group. This course is designed to cater to both beginners and seasoned investors, offering a broad spectrum of knowledge about securities and commodities futures. It's an invaluable resource for anyone looking to understand and engage in futures trading.
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Key Course Highlights:

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• Introduction to Futures: This foundational module is perfect for investors new to futures, introducing key concepts and trading tools within TWS.
• Mechanics of the Futures Market: Covers essential topics like risk, futures pricing, contango and backwardation, contract specifics, and futures margin.
• Trading Futures with TWS: Demonstrates how to manage futures contracts in TWS, including creating futures spreads and handling margin requirements.
• Futures Fundamental Analysis: Explains the process of using micro and macro-economic data and industry conditions to determine the model price of futures contracts.
• In-Depth Topics in Futures: The course delves into specific futures-related products, including equity index, energy, interest rate, FX, agricultural, and metal futures.
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Participants in this course will gain a comprehensive understanding of futures trading, from the basic mechanics of the futures market to more advanced concepts in futures fundamental analysis. The course is structured to provide a solid foundation in futures concepts, supplemented with practical demonstrations using the TWS platform. Whether you're starting out or looking to deepen your knowledge in futures trading, this course offers the tools and insights necessary to navigate the futures market effectively.

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FAQ

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1) What exactly is a futures contract and why trade it?

A futures contract is an agreement to buy or sell something (like oil, wheat, or a stock index) at a set price on a future date. People trade futures to protect against price changes, to get quick exposure to a market, or to use leverage (controlling a large position with less money up front).

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2) How are futures priced (fair value and basis)?

The price of a future starts with today’s market price and adjusts for costs (like financing or storage) and income (like dividends). The “basis” is the difference between the futures price and today’s price, and this difference disappears when the contract expires.

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3) What do contango and backwardation imply for returns?

• Contango: when futures are more expensive than today’s price. This usually hurts long-term buyers because rolling into new contracts costs more.
• Backwardation: when futures are cheaper than today’s price. This can benefit buyers because rolling into new contracts costs less.

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4) How do margin and daily P&L work in futures?

To trade futures, you only need to deposit part of the contract value (margin). Each day your profit or loss is updated based on price moves. Because of leverage, gains and losses can be much larger, and if losses are too big, you may need to add more money or your position could be closed.

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5) How do I execute and manage futures in TWS?

In TWS you can place futures trades, build spread trades, and see how much margin is needed. The platform also helps manage expiring contracts, track risks, and analyze products across markets like stocks, energy, interest rates, currencies, agriculture, and metals.

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