Briefly about how to trade futures on CME

торговля фьючерсами на бирже

Futures trading on the stock exchange is a rather specific kind of transactions, which practically is not developed in Russia. If you ask the Internet to search for “Strategy of futures trading” or “futures Trading in Russia”, the search engine will just tell about  the derivatives market FORTS (Forts) and the futures on the RTS index. A much more developed futures exchanges CME and ICE, which together control almost the entire derivatives market (futures and options). A brief description of how to trade on U.S. exchanges, as well as differences of strategies of futures trading and the asset (Forex) and are presented below.

Futures trading on the stock exchange

As a basic example, consider the desire of novice investor to invest in gold futures. In volatile stock markets the metal feels great. However, the algorithm will be relevant for other assets.

  1. Define the designated ticket exchange of the underlying asset. To do this, go to the website of CME or ICE, where we find the right underlying asset. For example, on the website of CME need to go to Ptoducts, and then in Metals, where in column “Precious” will indicate the required asset – gold. Go to the metal page and click on the link above leading to the contract specifications (Contract Specification), which is useful to us. In the line Product Symbol see the Ticker – GC.
    specification of basic asset СМЕ
  2. On the stock exchange CME trading is held at least of 2 dozens of futures contracts on gold, which differ in delivery times. The investor’s task is to define futures trading on stock exchange what delivery times are more liquid. I recommend the website of BarChart. Go to the website, select Metals, you’ll find the Gold.

The trader sees all 20 futures contracts with delivery times ranging from several days (months) and in the next few years. Go to each of the contracts and see the value of the Volume. We are interested in the largest value. The most liquid, as practice shows, are the futures with the delivery of goods in 1-2 months from the current date. And full Ticker asset is specified in the title. In this case, GCQ16, where Q is the marking of the month, 16 – year.
determination of liquidity of futures contract

  1. The next thing that should interest the trader – the date of the last trading day and the beginning of delivery on the futures. If you miss these dates, you will have to close the deal on non-liquid market, having large losses due to the increased spread. In the worst case, it is possible to run into supply, that is, to get to the actual performance of the futures contract, and then think what to do with the real box with gold bars. Although this exchange does not actually occur.

Professional traders recommend to move from the expiring contract into the new before few working days before the start of deliveries (for futures traded on a monthly basis) and before 1.5-2 weeks (for quarterly trade).

Date is specified in the specifications, which were discussed in the 1st paragraph in the section Calendar.

futures calendar

  1. The next step is determination of the volume of contracts that the trader can buy with given leverage (margin trading), which he will be provide by the broker. When buying contract, the broker holds the deposit – the amount that will remain unavailable to the client before the end of trading – futures trading on the stock exchange CME requires 10 thousand dollars of start-up capital. To determine the amount you can use the summary table of exchanges, but they are cumbersome and difficult to understand. I recommend the website RJOBrien, where you will be able to download the table in Gold will be located in the CMX-COMEX (a division of CME, which deals with precious metals). Look at the values in columns:
  • Spect Init – initial margin. If, for example, it is equal to 11 110, with a deposit of 15 thousand dollars, investor can only buy 1 contract, with a Deposit of 35 thousand dollars – 3 contracts;
  • Spect Mnt – maintenance margin. For the above case, it can basically be equal to 8 500. This is the boundary below which you cannot fall. If the amount in the account drops below 8 500 (futures purchased cheaper), or will have to Deposit money into the account or close the position fixing the loss.
  1. Although futures trading on the stock exchange is around the clock, it sometimes breaks. The period of bidding can be seen in the same specification (Hours), moving it during your time zone. Also in the specifications to the metal, you can see the leverage and the minimum price movement.

This general algorithm allows to trade with any underlying asset. How to hold it when to buy or sell technical and fundamental analysis will answer. And be sure to always keep at hand the telephone Trading Desk if you have problems with the Internet.

Essentially futures trading is almost the same as Forex, but there are some differences:

  • open position in the Forex market can be arbitrarily long, whereas futures have a limited life. Moreover, this period affects trading activity;
  • futures swaps already included in their cost (swap in this case – a fee for transferring positions to the next day);
  • instead of leverage in the futures market operate on the concept of collateral margin, which may be different for different assets.

In the rest the futures trading on the exchange is identical to Forex.

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