How do you trade futures?


Quick Answer

An investor can trade futures by opening and trading his own account, by opening a managed account or by joining a commodity pool. An investor who manages his own account acquires the most risk as opposed to investing in a commodity pool that has lesser risk.

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Full Answer

An investor who trades his own account has to conduct his own market analysis, manage his funds, maintain his margins and order his trades. An investor who opens a managed account allows his broker to trade on his behalf following a set of conditions agreed on when opening the account. Such an investor benefits from having a professional trading on his behalf; however, he is still responsible for any losing trades made by his broker.

Investing in a commodity pool bears the least risk to an investor's capital as his funds are combined with others and traded together. An investor earns profits and losses that are proportional to the money he has invested. He is not responsible for margin calls. A commodity pool must be managed by a competent broker since it is still exposed to the risks of the futures market.

Although futures trades occur in a physical exchange, brokers offer retail investors electronic access to the futures market.

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