Futures Trading 101: The Complete Beginner’s Guide to Trading Futures
Learn the basics of futures trading in this beginner-friendly guide. Understand what futures contracts are, how they work, and how to get started.
Futures trading can seem complicated at first, but it’s an incredibly powerful tool once you understand how it works. Whether you're looking to diversify your portfolio, hedge risk, or simply explore new markets futures trading offers opportunities that traditional stock trading can’t match.
In this guide, we’ll walk you through the basics of futures trading step-by-step perfect for beginners.
What is Futures Trading?
At its core, futures trading involves buying and selling contracts for a specific asset at a future date and agreed-upon price.
Unlike buying a stock, when you trade a futures contract, you are agreeing to buy or sell the underlying asset at a later date but you can trade that contract any time before it expires.1
Futures are traded on a wide range of markets including commodities, stock indexes, currencies, bonds, and more.
How Do Futures Contracts Work?
Let’s break it down:
A futures contract is a legal agreement between two parties
It specifies:
The underlying asset (like crude oil, gold, S&P 500 index)
The quantity (such as 1,000 barrels of oil)
The expiration date (for example, July 2025)2
The price (agreed when you enter the trade)
Even though the contract has an expiration date, traders usually don’t hold it that long they buy and sell the contract itself for profit, similar to trading stocks.
Futures vs. Options vs. Stocks
Common Futures Markets
You can trade futures in many markets, such as:
Commodities: oil, natural gas, gold, silver, corn, wheat
Stock Indexes: S&P 500 (ES), Nasdaq (NQ), Dow (YM)
Currencies: EUR/USD, GBP/USD, JPY
Interest Rates: Treasury bonds, Eurodollars
Cryptocurrency: Bitcoin futures (CME BTC)
Understanding Leverage and Margin
One of the biggest differences with futures trading is leverage.3
You only need to put up a fraction of the total contract value called the initial margin.4
This lets you control a large position with a smaller amount of capital.
Example: controlling $100,000 worth of oil with $5,000 margin.
Important: Leverage cuts both ways while it can amplify profits, it also increases potential losses.
Risks of Trading Futures
High volatility means prices can move quickly
Leverage magnifies gains AND losses
Need to understand contract expiration and rollovers
Margin calls if your account falls below required balance
It’s critical to manage risk carefully when trading futures.
Example Futures Trade (Step-by-Step)
Let’s say:
You buy 1 S&P 500 E-mini futures contract at 5,000
Each point = $505
The index rises to 5,020 → 20 point move (80 Ticks)6
Profit = 20 points x $50 = $1,000
If it had dropped 20 points, you’d lose $1,000.
How to Get Started: Choosing a Broker & Platform
To trade futures, you’ll need:
A futures-approved trading account
A broker who offers futures trading (Ex: Interactive Brokers, NinjaTrader, Tradovate)
A good trading platform (with charts & order entry tools)
Futures Trading Tips for Beginners
Start with a simulator first (paper trading)
Understand your contract specifications
Focus on risk management and use stops
Begin with liquid markets (S&P 500, crude oil)
Don’t over-leverage and use conservative sizing
Futures trading opens up a new world of opportunity but it also comes with higher risks. The more time you invest in learning the basics and practicing with a demo account, the more confident you’ll become.
*Disclaimer: Not Financial Advice. Investors should conduct thorough research and seek professional advice before making any investment decisions.
Contract: The agreement to buy/sell the underlying asset
Expiration: Date the contract settles
Leverage: Controlling a larger value with small margin
Margin: Amount needed to open a trade
Point: Larger price move (ex: 1 point = $50 for ES)
Tick: Smallest price movement