Futures Trading from Beginner to Expert | Master 9 Key Points

If you want to understand how futures trading works, you first need to grasp the fundamental logic of this market. Futures trading may seem complicated, but it’s essentially the buying and selling of standardized contracts—you and another party agree to transact at a future date, at a price set today. The reason why futures attract investors worldwide is because they offer high leverage, the ability to go long or short, and flexible, quick execution. However, these features also make many beginners underestimate the risks involved. This guide will systematically take you from concepts to practical strategies, helping you master the core logic of futures trading.

Understanding How Futures Work | Recognizing the Nature of Futures

In Taiwan’s futures market, the most traded contracts are the Taiwan Stock Index Futures, which are based on the Taiwan Weighted Index. But futures are not limited to this—commodities, raw materials, foreign exchange rates, stocks, bonds, indices, and various financial products can all be traded as futures.

Simply put, futures trading involves: two parties posting prices on an exchange, one buying and one selling, with the system automatically matching and executing the trade. Each contract has a clear expiration date, at which point it is forcibly closed and settled. Unlike spot trading, futures require only a margin deposit to control the entire contract value—that’s the power of leverage.

You can view all details of each futures contract on the exchange, including product code, trading specifications, minimum price fluctuation, trading hours, expiration date, and whether physical delivery or cash settlement applies at expiry.

Nine Steps to Master Futures Trading | A Step-by-Step Practical Guide

To truly grasp futures trading, you shouldn’t jump in blindly. The following nine steps will help you build a systematic trading mindset:

1. Establish Basic Knowledge of the Futures Market

First, understand that futures contracts have expiration dates, require only a margin deposit, feature leverage, and allow both long and short positions. These four points are the foundation of futures trading and directly influence your risk management decisions.

2. Determine Which Trading Style Suits You

Review your past investment experience: Are you more comfortable with long-term holding or short-term trading? This is crucial. Long-term investors generally shouldn’t use futures as their main investment tool but rather as a hedging instrument to offset risks. Conversely, short-term traders are the primary audience for futures.

3. Choose a Suitable Futures Broker to Open an Account

Futures are issued by different exchanges—Taiwan has the Taiwan Futures Exchange; internationally, there’s CME, NYMEX, COMEX, Singapore Exchange, etc. Most investors need to open a futures account with a brokerage firm, which connects to the exchange and clearinghouse, providing you with an electronic order system.

In Taiwan, futures brokers include Yuanta Futures, KGI Futures, Fubon Futures, Cathay Futures, etc. International brokers include Mitrade, E-trade, TD Ameritrade, Interactive Brokers, and more. A good broker should offer a wide range of products, accurate and fast quotes, and low commissions.

In Taiwan, trading is limited mainly to Taiwan Index Futures and stock futures; other products like FX, metals, or energy futures have lower liquidity. For more diverse options, international markets offer a broader selection.

4. Use a Demo Account to Test Your Trading Strategies

After opening an account, don’t rush to trade with real money. Practice first with a demo account—many platforms like Mitrade offer free virtual funds (e.g., NT$50,000) to test whether your futures strategies can profit in the market.

This step is essential because leverage amplifies all results. Beginners must practice with mini futures, strictly adhering to stop-loss and take-profit rules.

5. Decide on the Futures Contracts You Will Trade

After demo testing, before entering the real market, deeply understand the underlying assets you plan to trade. Futures contracts are mainly divided into six categories:

Index Futures: S&P 500, NASDAQ 100, VIX, Dow Jones
Interest Rate Futures: Government bonds (2-year, 5-year, 10-year, 20-year), Eurozone rates
Grain Futures: Wheat, Corn, Soybeans
Metal Futures: Gold, Silver, Copper, Platinum
Energy Futures: Crude Oil, Heating Oil, Gasoline, Natural Gas
Soft Commodities: Cotton, Cocoa, Coffee, Sugar, Orange Juice

Among these, index and energy futures are the most popular, offering the highest liquidity and trading opportunities.

6. Prepare Sufficient Margin and Deposit Funds

Before trading, deposit the initial margin. Each futures contract has different margin requirements. For example, based on Yuanta’s data:

• Taiwan Futures Index (FITX): NT$306,000
• Mini Taiwan Index (FIMTX): NT$76,500
• Electronic Index (FITE): NT$428,000
• NASDAQ 100 (FIUN): NT$98,000
• Brent Crude Oil (FIBR): NT$54,000
• Gold (FIGD): US$2,330

7. Learn to Read the Market and Identify Trading Signals

Futures traders tend to focus on highly liquid contracts, usually near expiration (far-term contracts have less liquidity). Trading signals come from fundamental analysis, economic news, or technical analysis.

For stock futures, the logic is similar to stock investing—study the company and market. Since futures have expiration dates, it’s advisable to enter when technical signals are about to trigger, making the trend easier to follow.

8. Confirm Your Trading Direction | Going Long or Short

Going Long: Predict the asset price will rise

For example, if you expect oil prices to increase, buy CME E-mini crude oil contracts. If prices rise as expected, the contract’s value increases, and you can sell for profit. Similarly, if you believe the Fed will inject liquidity and US stocks will rebound, buy CME S&P 500 E-mini or Dow E-mini futures.

Going Short: Predict the asset price will fall

If you think oil prices will plummet, sell CME E-mini crude oil contracts. If prices drop as forecasted, your position gains value. Likewise, if you expect continued monetary tightening and stock declines, sell relevant indices.

9. Set Stop-Loss and Take-Profit Points | Discipline is Key to Profits

Markets are volatile, and both long and short positions carry risks. Beginners should set tight stop-loss levels and small position sizes—this is more important than any technical indicator.

With experience, you can gradually adjust your stop-loss and take-profit levels based on market conditions. But the core principle remains—having rules and a systematic approach is essential for sustained profits in futures trading.

Risks and Opportunities in Futures Trading | Why Leverage Is a Double-Edged Sword

Five Advantages of Futures Trading

Leverage Enhances Capital Efficiency: Futures allow controlling large contract values with relatively small capital, enabling “small capital, big position.” Compared to stocks, which require full payment, futures maximize capital use.

Ease of Going Long or Short: Stock markets mainly involve buying and hoping for price increases; shorting requires borrowing and paying fees. Futures make shorting straightforward—just trade the contract.

Hedging Existing Positions: Investors can hedge risks without selling stocks prematurely, using futures to offset volatility.

High Liquidity and Transparency: International futures markets are highly active, suitable for large investors seeking ample trading opportunities.

Lower Transaction Costs: Futures often have lower commissions than stock trading, allowing more frequent trading.

Three Major Risks in Futures Trading

Leverage Risk — The Double-Edged Sword: Leverage magnifies both gains and losses. Without strict stop-loss and risk controls, futures trading can be dangerous. While stocks can lose your invested capital, futures can lead to losses exceeding your margin, potentially owing money to the broker.

Unlimited Liability: A critical risk often overlooked. Leverage means losses can theoretically be unlimited.

High-Frequency Intraday Trading Risks: The flexibility of futures attracts frequent traders. High leverage combined with frequent trading can lead to margin calls or liquidation.

Advanced Alternatives | Differences Between CFDs and Futures

If futures seem too risky or complex, Contracts for Difference (CFDs) might be an alternative. CFDs are derivatives where the profit or loss is based on the price difference of the underlying asset, without physical delivery.

Three Advantages of CFDs Over Futures

Broader Range of Instruments: Taiwan’s futures options are limited, but CFDs offer over 400 markets, including stocks, forex, cryptocurrencies, and commodities via platforms like Mitrade.

More Flexible Trading and Specifications: CFDs have no expiration date, allowing indefinite holding. They also offer flexible lot sizes (from 0.01 to 30 units) and adjustable leverage (1-200x), much more adaptable than fixed futures specs.

Lower Entry Costs: CFDs typically require lower initial deposits due to flexible leverage, making them accessible for smaller investors.

Key Points for CFD Trading

First, Control Leverage Carefully: Leverage is a double-edged sword. Choose the appropriate level based on the asset’s volatility—higher leverage for less volatile assets like currencies, lower for more volatile stocks or commodities.

Second, Develop a Complete Trading Plan: Whether going long or short, set clear stop-loss and take-profit levels beforehand to manage risks effectively.

Final Advice for Futures Trading

Regardless of whether you choose futures or CFDs, success depends not on mastering advanced techniques but on establishing a complete, executable, and disciplined trading system.

Markets are full of temptations—low entry barriers, high leverage, 24-hour trading. But what attracts beginners often leads to losses. Without discipline, trading is like driving a supercar without brakes—fast but heading toward a cliff.

Before starting futures trading, thoroughly test your strategies on a demo account. Once in the market, strictly adhere to stop-loss rules. Accumulate experience gradually, adjusting your strategies as you learn. Only through disciplined practice can futures become a sustainable investment skill rather than a gamble.