Long Futures

So the most basic strategy with futures is to find a stock you think is moving higher, and buy a futures contract rather than the stock itself. This immediately multiplies up the impact of your funds. You can apply the same idea to buying a futures contract in an index, when you think the market as a whole is going up. When you’re trading futures, the NASDAQ 100 (NDX) contract is worth 100 times the index, in this case $200,000. If you think the NASDAQ 100 will go up in the next three months, for a mere $25,000 initial margin you can get $100 for every point the index goes up. If it goes from the current 2000 up to 2200, you’ll have a return of $20,000.

If that seems a little expensive for your trading budget, there are series of e-mini contracts which you can trade on the CME, and the NASDAQ 100 e-mini is 1/5 of the size, which means you only need $5000 as the initial margin. You can even create your own index by buying the contract and shorting the contract of any shares you don’t like, making your own NASDAQ 99.

When you use spread betting as your trading vehicle of choice, all these factors are relevant, but you do not need to have such a large initial margin. The minimum bet will depend on your spread trading broker and can be checked online, where you’ll also find the minimum margin required to allow you to place the bet.

Short Futures

Futures make it very easy to take a short position, when you think a stock or index is going to fall in price. While there can be regulations and costs to take a normal short position, the short future is just as easy as the long future to trade. Your broker does not have to find some shares to borrow, which is usually a fast process but may take longer if the shares are hard to find. When you are shorting shares directly, there is always the possibility that your position will be closed if the owner wants the shares back, and that cannot happen if you take a short future contract. There’s no limit to the amount of open interest that can exist, it can be even more than the number of shares in existence. In fact at one moment in time there was a similar position with silver futures a few years ago, where contracts had been taken out for more than the amount of silver in the world.

One key difference from trading shares is that futures contracts have an expiration date, which you may be thinking would make them harder to use. It is an additional consideration, but simple to deal with. The answer to that is to roll the contract forward to the next expiring month, which can be done indefinitely. When you roll the contract forward, you may have to come up with a financial adjustment. For the spread better, you only contract is with your spread betting company and you simply have to abide by their terms.

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