Futures | October 4, 2017

Why Trade Futures?

Whether you want to hedge certain elements of your portfolio or you’re looking to capitalize on price swings in the commodity markets, futures trading at Charles Schwab Futures might fit the bill.

24-hour trading opportunities

Many electronic and international futures markets trade almost continuously, around the clock. This means that you can trade virtually non-stop and can take advantage of trading opportunities whenever they might arise.

Electronic trading

Though futures trading conjures images of the colorful, open-outcry pits, the reality is that most futures trading these days is conducted totally electronically. Orders typically are routed directly to their destinations with no human intervention and are executed and confirmed in one second or less. Fast, accurate executions allow you to trade quickly in and out of the markets with confidence.

Regulated futures exchanges

Futures contracts are traded at centralized, government-regulated exchanges to help ensure fair practices. In addition, exchanges clear and guarantee all transactions, so investors can have confidence that their trades will be honored.

Easy to open and close positions 

Most of the major futures markets are quite liquid, which makes it easy to establish or offset your trading positions as desired. As participation in the futures markets continues to grow, liquidity rises and bid/ask spreads continue to narrow, making the futures markets even more attractive.

Going "short" is as easy as going "long" 

If you think the price of a commodity market is about to move higher, you can buy (“go long”) a futures contract. However, if you believe a commodity price is going to decline, you can sell (“go short”) a futures contract just as easily, with no special uptick or short-sale rules. It’s just as easy to go short as it is to go long!

Low margin requirements, high leverage 

Futures traders are required to post “margin” – good-faith collateral to cover any losses that might arise. Futures exchanges generally set margin requirements at 3%-10% of the underlying contract value, making futures a highly efficient use of trading capital. Of course, leverage can be a double-edged sword, exacerbating any losses one might experience. For this reason, futures are best suited to traders with a greater tolerance for risk.

Real-time live account information

We’ll provide you with live, real-time account information, so you always know where your account stands. Each time you trade – and even each time the market ticks up or down – the Street Smart Central system automatically updates your open positions and working orders, and it recalculates your margin requirements, P&L, money balances, and trading power.

Trade a variety of products

Commodity futures

Commodities are broadly defined as natural resources, chemicals and physical products you can touch, taste, smell, grow, mine, consume, or deliver. The most popular physical commodities can be broken down into several broad categories: Metals, energies, grains, livestock/meats, and food/fiber (also occasionally referred to as the “softs”).

Financial futures

Whereas commodity futures are based on tangible assets, financial futures are based on underlying financial instruments. Financial futures generally fall into three broad categories: Stock indexes (such as S&P 500 futures and Nikkei futures), global currencies (such as the Euro and the Japanese Yen), and interest rates (including U.S. Treasuries and Eurodollars).

Options on futures

You also can trade options on just about every futures contract we offer, with everything from simple outright option trades to complex option spreads. If you’re an equity options trader, you’ll enjoy the fact that your knowledge is largely transferable to futures options. Though the underlying instrument is a futures contract, rather than a stock or index, all the same option fundamentals and strategies still apply.

Commodity futures 

Metal futures

The metals group includes well-known commodities such as gold, silver, copper, platinum and palladium. Metals are used in various industrial applications, in construction, and of course, in jewelry. Geopolitical and economic factors in the dominant producing and consuming countries affect price action, but each metal also has its own unique fundamental influences. Metals are also seen as a gauge of worldwide economic trends. Gold is often seen as an inflation hedge and safe haven investment during times of uncertainty and turbulence.

Energy futures

Crude oil, gasoline, heating oil, and natural gas are very much in the news these days. Energy futures are considered important barometers of world economic and political developments and are watched carefully by investors and traders worldwide. The value of the U.S. Dollar is significant because much of the world’s crude oil inventory is priced in Dollars. These markets are also subject to seasonal fluctuations -- mild weather may lessen the need for heating oil, for instance, while the summer driving season tends to bring greater gasoline demand.

Grain futures

The grain complex is comprised of corn, soybeans, soybean meal, soybean oil, wheat, oats and rough rice. Grains and soybeans are essential to food and feed supplies, and prices are especially sensitive to weather conditions in growing areas at key times during a crop’s development and to economic conditions that affect demand. The U.S. Department of Agriculture (USDA) regularly publishes reports that summarize key factors influencing supply and demand, including current production and carryover supply from the prior season.

Livestock / dairy futures

The Chicago Mercantile Exchange is the primary marketplace for futures on live cattle, feeder cattle, lean hogs, pork bellies and milk. Prices of these consumable commodities are affected by demand, competing protein sources such as chicken, the price of feeds and other inputs, and factors that influence the number of animals born and sent to market, such as disease and weather.

Food / fiber futures

Coffee, sugar, cocoa, cotton, and orange juice are some of the most popular “soft” products among retail futures traders. In addition to global consumer demand, the usual growing factors such as disease, insects and drought affect prices for all of these commodities. International exchange rates affect all of these global products, as well as factors like tariffs and geopolitical events in producing nations.

Financial futures 

Stock index futures:

Futures contracts related to the equity markets are consistently among the most actively traded. There are futures contracts based on many of the world’s leading stock market indexes, including the Dow Jones Industrials, S&P 500, Nasdaq 100, and many others. Fundamental factors influencing stock markets include corporate earnings, news about the global and domestic economy, inflation, currency values, politics, and interest rates.

Currency futures:

Also known as foreign exchange, forex, or simply FX, the currency market is the world’s largest, most liquid financial market. Financial institutions, investment managers, corporations, and individual investors trade currency futures to manage the risks and capture potential opportunities associated with currency rate fluctuations. The CME Group is the worldwide leader in currency futures trading, offering futures on the Euro, Japanese Yen, British Pound, Swiss Franc, Canadian Dollar, Australian Dollar and others, with pricing based on a nation’s respective currency value versus the U.S. Dollar.

Interest rate futures:

As interest rates rise and fall, the price of outstanding debt moves in the opposite direction. In simple terms, interest rates reflect the price of money. And like all goods and services, interest rates are determined mainly by supply and demand. Also, central banks can manipulate interest rates – rates are adjusted upward in an attempt to slow an economy, while rates are adjusted downward to act as a stimulus. Futures on important interest rate instruments – such as short-term and long-term government and private debt – have become an increasingly common way for traders to deal with these fluctuations.

Next steps 

Now that you’ve learned more about the advantages of trading futures, perhaps you’re ready to take that next step. Here are a few ways to keep moving forward:

  • Our website offers many online tools and educational resources tailored especially for newcomers to the commodity futures markets. You’ll find webinars, strategy papers, exchange brochures, and more – all under the Educate tab.
  • Already a Charles Schwab client but not yet trading futures? Log in, and under the Trade tab, click the link to the Futures page. Enable your account for futures trading by completing a quick and easy online process.

At Charles Schwab Futures, you don’t have to face the futures markets alone. We’ve helped countless beginner futures traders get started, and we’d like to help you.


Want to learn more about trading futures at Schwab? Call the Schwab concierge team at 877-280-6040.