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Futures Contracts

If you are looking to trade the futures markets you can take positions on a wide range international markets such as:

  • Stock Market Futures eg Dow Jones, FTSE 100, DAX 30
  • Stocks and Shares Futures eg UK, US, German and French Stock and Shares
  • Forex Futures eg Euro/Dollar, Sterling/Dollar, Dollar/Yen and even Dollar/Peso
  • Commodities Futures eg Gold, Crude Oil and Sugar

You can trade these markets with firms like Financial Spread.

Before you trade though note that Futures Contracts in the form of CFDs and Financial Spread Trading you can lose more than you initially invested. CFD Trading and Financial Spread Trading are leveraged products and carry a high level of risk to your capital. Ensure that leveraged products match your investment objectives. Familiarise yourself with the risks involved. Where necessary, seek independent advice.

How to Trade Futures Contracts

Should an investor want to speculate on the future price of a given market, eg the Barclays bank share price, one solution could be financial spread trading on the Barclays share price.

By financial spread trading on Barclays, investors can speculate on the future price of the shares to go up or down.

Looking at FinancialSpreads.com, they are valuing the Barclays Rolling Daily market at 313.3p – 314.0p. This means you can spread trade on the Barclays shares:

  • Moving higher than 314.0p, or
  • Moving lower than 313.3p

Whilst financial spread trading on UK shares you trade in £x per penny. As a result, if you chose to invest £10 per penny and the Barclays share price moves 5p then that would change your profit/loss by £50. £10 per penny x 5p = £50.

You can also trade this market in Euros per penny and Dollars per penny. For a Dollar based trading example see futures contract trading example.

Futures Contracts Daily Markets

Be aware that this is a Rolling Daily Market – there is no closing date. If a trade is still open when the markets close at the end of the day, it will just roll over into the next day.

If your position does roll over and you are speculating on the market to:

  • Go up – then you are usually charged a small overnight financing fee, or
  • Go down – then a small payment will usually be credited to your account

Futures Contracts Trading Example

So, if you consider the above spread of 313.3p – 314.0p and assume that:

  • you have analysed the online futures contracts market, and
  • it leads you to feel that the Barclays share price is likely to increase and move above 314.0p

then you might buy a trade at 314.0p and risk, let’s say, £5 per penny.

Therefore, you make a profit of £5 for every penny that the Barclays shares rise higher than 314.0p. On the other hand, you will make a loss of £5 for every penny that the Barclays market falls lower than 314.0p.

With this in mind, if after a few sessions the shares moved higher then you might want to close your postion in order to lock in your profit.

Therefore, if the market moved up then the spread could change to 331.3p – 332.0p. In order to close your trade you would sell at 331.3p. So, with the same £5 stake this trade would make you a profit of:

  • P&L = (Closing Level – Initial Level) x stake
  • P&L = (331.3p – 314.0p) x £5 per penny stake
  • P&L = 17.3p x £5 per penny stake
  • P&L = £86.50 profit

Trading online futures contracts, via financial spread trading or CFDs, is not easy. In this example, you had speculated that the stock would go up. Nevertheless, it might decrease.

If the Barclays stock weakened, against your expectations, then you could close your trade in order to restrict your losses.

So if the market fell to 298.3p – 299.0p then this means you would settle your trade by selling at 298.3p. As a result, your loss would be:

  • P&L = (Closing Level – Initial Level) x stake
  • P&L = (298.3p – 314.0p) x £5 per penny stake
  • P&L = -15.7p x £5 per penny stake
  • P&L = -£78.50 loss

Note: Barclays Rolling Daily market correct as of 18-Jun-10.

With Futures Contracts in the form of CFDs and Financial Spread Trading you can lose more than you initially invested. CFD Trading and Financial Spread Trading are leveraged products and carry a high level of risk to your capital. Ensure that leveraged products match your investment objectives. Familiarise yourself with the risks involved. Where necessary, seek independent advice.