How do futures trading commissions work?
Futures trading brokers charge commissions per contract. Until recently there was also a basic commission in some cases. As brokers have eliminated stock trading commissions, the base commissions charged on some futures trades have also disappeared.
Prices per contract can vary significantly. Typical online futures brokers charge commissions for futures trading in the range of $1 to $3 per contract. Some of the more volume-oriented platforms have lower commissions. Some also have separate commission structures for futures options and e-mini futures.
Is Futures Trading Right for You?
It depends on. Like any other type of trading, futures are suitable for investors who really know what they are doing. Trading futures can be risky. On the one hand, futures investors often use significant margin (leverage) when trading. Think of margin as borrowing a portion of the value of an investment – similar to taking out a mortgage to pay for what your down payment on a house doesn't cover. Anytime there is a large leverage component, there is a risk of larger losses if things go wrong.
For beginners, it is important to learn as much as possible before getting started. If you're thinking about starting futures trading, it might be a smart idea to choose a broker with plenty of educational resources. Also look for a “play money” platform so you can try futures trading without risking your actual money until you are 100% sure you are ready.
Advantages and Disadvantages of Futures Trading
Advantages
Longer market opening times: Futures markets are open significantly longer than the stock market. For example, CME's futures markets are open nearly 23 hours a day, six days a week.
Tons of Assets Available: Want to Invest in Oil Prices? Orange juice? Bitcoin? Coffee? Euro? Want to predict the direction of interest rates? These are just some of the assets you can find futures contracts on.
Lots of leverage: Margin is a standard part of futures trading, to a much greater extent than on the stock market. This can be a good thing or a bad thing, but it allows you to control a relatively large contract value with a small capital outlay.
No Time Decay: In options trading, options contracts generally lose some of their value over time as they approach expiration, a phenomenon known as time decay. Because futures contracts represent the actual price of an asset and not the right to purchase an asset, there is no time decay.
READ MORE: If you want to trade options, here is our list of the best options stock brokers.
Disadvantages
Risk: Trading futures is a completely different business than trading stocks or options and carries its own risks. It can be very easy to lose money trading futures if you don't know what you're doing.
World Events: Events beyond investors' control can affect futures prices and, in some cases, result in huge losses. For example, in the early days of the COVID-19 pandemic, there simply wasn't enough space to store all the oil represented by futures contracts after demand collapsed. So there was a point in time when oil futures were actually trading at negative prices.
High Leverage: As mentioned earlier, the use of leverage can be positive or negative. While high leverage gives you exposure to a high dollar value of assets, it can also cause relatively small fluctuations in asset prices to result in large fluctuations in futures traders' accounts.
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