Top Futures Trading Brokers
What Is Futures Trading?
Futures trading involves contracts that allow you to set a price for a certain asset in the present which can then be exchanged in the future.
Also known as ‘futures contracts’, this kind of agreement is legally binding and is required to be fulfilled either by financial payment or delivery of the asset.
Usually, two parties – one buyer and one seller – set a price at which to exchange an asset at a future date. Futures trading means that the buyer is obliged to buy the underlying asset, while the seller is obliged to sell the agreed asset when the contract expires, or before this date.
For example, if a buyer purchases an October oil futures contract, they are committing to purchasing 2,000 barrels of oil at the agreed price on the October expiration of the contract, regardless of the oil’s market value at the time. The seller is agreeing to sell those 2,000 barrels of oil at the agreed price, regardless of their current worth.
Futures trading is so popular because the contracts can be sold right up until the set fulfillment date. Regardless of what product or asset is being traded, the buyer and seller of any futures contract is obliged to fulfill their end of the agreement on or before the contract end date.
What You Need to Know About Futures Trading
A futures contract stands regardless of the market value of the asset at the time of fulfillment. This means that usually, either the buyer or seller loses out.
For instance, if the agreement is to buy 2,000 barrels of oil for $20,000, as mentioned above, the market value could be higher or lower than this at the time the contract expires. Either the buyer ends up paying more than the product is worth or the seller ends up losing some of the value of the product they have sold.
It is for this reason that futures trading is considered a risky means of trading. Traders can benefit significantly from futures trading, but it is important to understand that the risks are substantial.
Another key point to note is that futures contracts can be bought and sold up until the contract’s expiration date, which is when the contract must be fulfilled with the agreed asset or its financial value.
Futures contracts work as a means for supply chains to manage the constant changes of market prices on items, in addition to being a way for investors and traders to benefit from these price fluctuations.
Getting started in trading futures is a relatively easy process. An account is opened with a broker that supports the trading markets to be utilized. A futures broker will usually ask about the experience of a new trader, including their knowledge of investing and understanding of net worth, before offering support.
What to Look for When Choosing a Broker
When it comes to selecting a futures broker, it is important to be aware that there is no set industry standard in terms of associated fees.
Each futures broker offers a slightly different approach and service. Some brokers offer a large amount of information and advice, while others simply provide a quote and a basic chart.
When choosing a broker, there are some key questions to consider, to make the right choice for your circumstances:
Does It Offer a Virtual Trading Account?
While some futures broker sites will offer the option to open a virtual trading account, where you can practice trading before committing your funds, others won’t offer this service.
Having the opportunity to practice trading before beginning to trade properly is invaluable, especially for anyone new to futures trading.
Being able to practice trading offers a route to understanding how futures markets work and how to use the market.
Many experienced traders take advantage of virtual trading accounts to test out new strategies.
Is It Regulated?
When choosing a trading broker, it is important to ensure that the broker is operating securely. You will be entrusting the broker with your funds and sensitive information, so it is crucial to ensure that you have selected a trustworthy, reliable one.
Opting to work with a regulated broker is important as you will know it has a strong reputation with the correct credentials in place.
A regulated broker will be required to operate at very high standards and work with fairness and transparency at the forefront of everything.
Regulation information should always be visible on a trader’s website.
What Are the Associated Costs?
Different brokers charge different rates and operate these in a range of ways, so it is important to look into this before selecting a broker.
There are two types of futures broker:
- Transactional – Usually operate a one-size-fits-all approach. Every trader signs up and pays the same costs for the same services.
- Relationship-based – More focused on ensuring that its clients are successful. These brokers tailor the service and costs to meet their clients’ needs wherever possible, in terms of support, services and tools offered.
It is also worth looking at whether the broker requires a minimum investment amount to get started. Some brokers request high amounts which may not be viable for new traders.
Don’t forget to read the small print of a broker’s service agreement to ensure that you fully understand what rules are in place. This will help you to avoid unexpected costs when working with a futures broker.
Is 24/7 Support Available?
The futures markets operate constantly, running 24 hours a day, seven days a week, so it is helpful to have support available whenever you need it.
Having access to a futures broker who is always available makes navigating the market less daunting.
Is the Trading Technology up to Scratch?
It is important to ensure that a futures broker can offer superior trading technology, designed to make accessing the market as simple and easy as possible.
It is also worth asking whether multiple trading platforms are available, and if so, which platform offers the best option for your specific trading type and goals.
Are Futures Market Research and Reports Readily Available?
Research and reports will be a key aspect of your trading, so any trading broker you work with must have a wealth of market research and reports to refer to.
This content must be kept up to date so that it contains the latest trading information.
Top Futures Trading Brokers
When it comes to selecting a futures trading broker, how do you know which broker is the right fit for you and your trading needs?
There are numerous trading brokers to choose from, so research the best option for your specific trading requirements.
Below are eight futures brokers who have ranked well in our research. However, you must do your due diligence before selecting a broker and check all details carefully.
Best for: Low commission
Tradestation shines when it comes to technology. Its platform is tech-rich and ideal for online traders. Tradestation also assists traders on its platform, which offers both desktop and web versions.
This trader was rated number one for platform technology for the ninth consecutive year in Stockbrokers.com's 2021 Online Broker Review.
Tradestation has two pricing options available, offering traders flexibility.
It offers low rates of commission compared to its competitors, making it a budget-friendly option.
Best for: Professional traders
Interactive Brokers is a great option for professional traders. Its platform boasts a range of trading tools and order types to choose from.
However, the platform is not particularly beginner-friendly as its setup is more advanced.
The minimum deposit for Interactive Brokers is $100,000, so it is not a viable option for every trader.
Best for: Educational tools
The Charles Schwab trading platform is easy to use and navigate. It offers plenty of educational tools that are ideal for traders still learning the ropes.
Offering access to an online and a desktop platform, Charles Schwab is a versatile option that is particularly popular with newer traders.
Best for: Mobile trading
TD Ameritrade boasts a wide range of trading tools, designed for ease of trading wherever you are.
A highlight of its offerings is the ability to trade via a virtual platform, using fake money to practice your trading strategies. This can be hugely beneficial for newer traders or experienced traders wanting to plot out their next move.
Best for: Balanced offering
E-Trade is one of the most popular trading platforms. Its $0 commission rate and strong platform design appeal to traders of all levels.
The lower commission rates tend to appeal to more active traders, while the large educational resource library is beneficial to newer traders.
Best for: Advanced traders
NinjaTrader offers a platform for traders of all abilities. The wide range of technical analysis tools makes this trading platform ideal both for beginners and more advanced traders, as does the demo account feature.
The minimum opening amount is $400, making it a good choice for traders with lower budgets.
Best for: Active traders
Lightspeed is a great option for anyone who trades regularly, as the platform offers volume discounts for traders who use it frequently.
The platform offers low commissions, easy access to ECNs (electronic communication networks) and direct access to exchanges. There is also a practice account available for plotting out new strategies.
The minimum opening balance is $10,000 so the platform is not as budget-friendly as some of its competitors.
Best for: Volume discounts
Discount Trading is designed to be simple to use and accessible in terms of costs. The platform offers affordable commissions and some very low trading fees.
A range of platforms are on offer for investors of all experience levels, with features including live quotes, market alerts, real-time updates and an easy-to-use live-chat feature.
All of the above brokers are popular choices with futures traders and are worth taking the time to research. The best one for you will depend on whether you are an active trader or new to the world of trading.
It is important to carry out your due diligence and ask the questions outlined above before choosing the right broker for you.
WikiJob does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.