Futures Trading

Futures trading involves buying or selling contracts that obligate the trader to purchase or sell an asset at a predetermined price on a specified future date. Futures are standardised contracts traded on exchanges and are available for a wide range of assets, including commodities, currencies, indices, and interest rates. They are commonly used for both speculation and hedging.

A trader anticipating a rise in crude oil prices might buy a futures contract at $80 per barrel, with the expectation of selling it at a higher price before expiry. If oil rises to $85, the trader profits from the $5 difference per barrel. In a prop trading context, futures are a popular instrument because of their high liquidity, leverage, and the ability to go long or short with equal ease. Prop traders must manage their futures positions carefully, as the leverage involved can amplify both gains and losses, making strict adherence to drawdown limits essential.