How to buy futures? A complete beginner's guide to trading｜Learn futures trading from scratch

1. Understanding the Essence of Futures

What are futures? Simply put, the foundation of how to buy futures is understanding their trading nature. Futures are a type of contract trading where both parties agree to transact at a predetermined price at a future date. Unlike spot trading, futures involve underlying assets such as commodities, stock indices, exchange rates, bonds, and more.

Futures contracts listed on exchanges specify all details—from product codes, trading volume, price fluctuations, to trading hours and expiration dates. This standardized design makes trading transparent and efficient.

The most popular futures in Taiwan’s futures market are Taiwan Stock Index Futures, but the international futures market offers a much richer variety—S&P 500, gold, crude oil, agricultural products, and more.

2. Why Do Futures Trading Attract Investors?

Compared to stocks, futures have several obvious advantages:

◆ Leverage Effect — Control a larger contract value with only a partial margin, making capital utilization high
◆ Flexibility in Long and Short Positions — Unlike stock short selling which requires borrowing, futures make long and short positions easy
◆ Low Transaction Costs — Lower commission fees
◆ Hedging Tool — Use futures to hedge against price risks of existing positions
◆ High Liquidity — International futures markets trade frequently, making entry and exit convenient

But these advantages come with significant risks.

3. The Risks of Futures Trading Must Be Recognized

Many beginners are attracted by the high leverage of futures but overlook the deadly risks:

◆ Leverage is a Double-Edged Sword — It amplifies both profits and losses. Wrong market direction can cause losses to escalate rapidly
◆ Unlimited Liability Risk — While stock losses are limited to the invested capital, futures can result in owing money to the broker due to extreme volatility
◆ Forced Liquidation Pressure — Contracts have expiration dates; positions must be closed or rolled over within a set timeframe
◆ Margin Calls — If losses cause margin to fall below required levels, brokers will force close positions or require additional margin
◆ High Intraday Risks — High-frequency trading combined with high leverage is a primary cause of futures account blowouts

This is why, how to buy futures and the methods are only surface issues; the key is to establish a complete trading system and risk management mechanism.

4. How to Buy Futures? 9 Practical Steps

Step 1: Define Your Trading Style

Assess your personal investment style. Are you inclined toward long-term holding or short-term trading? Long-term investors should treat futures as a hedging tool rather than a primary investment target. Short-term traders are suited for frequent entry and exit in futures.

Step 2: Choose a Suitable Futures Broker

Futures are issued by exchanges (such as Taiwan Futures Exchange, CME in the US, Singapore Exchange, etc.), and investors need to open an account with a futures broker. A good broker should have:

• Diverse trading products
• Accurate and fast quotes
• Low transaction fees
• Stable trading platform

Taiwan futures brokers for reference: Yuanta Futures, KGI Futures, Cathay Futures, Sinopac Futures, Fubon Futures

International brokers for reference: Mitrade, E-trade, TD Ameritrade, Interactive Brokers

Step 3: Verify Trading Strategies with a Demo Account

After registering on a platform, be sure to practice with a demo account. Many platforms offer free virtual funds (e.g., Mitrade provides NT$50,000 demo funds), allowing you to test trading systems and find strategies that can actually profit.

This step is especially important—demo trading exposes strategy flaws without risking real money.

Step 4: Understand the Specifications of the Futures Contracts You Trade

Details of futures contracts determine your trading costs and risks. Here are the margin requirements for Taiwan’s mainstream futures brokers:

When selecting an underlying, pay attention to three factors: the contract’s underlying asset, expiration date, and leverage multiple.

Step 5: Deposit Funds and Prepare to Trade

After understanding margin requirements, confirm your deposit amount. Remember, the amount you can deposit is not necessarily the amount you should invest. Beginners are advised to start small, using mini futures for practice.

Step 6: Learn to Read the Market and Spot Trading Signals

Trading signals are crucial for success or failure. Futures traders typically rely on:

• Fundamental Analysis — Understanding economic trends and policy impacts
• Technical Analysis — Using charts to identify entry and exit points
• News and Events — Keeping track of major economic data and news

Tip: Futures traders tend to prefer contracts with high liquidity, usually near expiration, because longer-dated contracts tend to have lower liquidity.

Step 7: Decide Whether to Go Long or Short

Going Long: Expect asset prices to rise; buy first, then sell. For example, bullish on US stocks, buy S&P 500 futures; bullish on oil, buy crude futures.

Going Short: Expect asset prices to fall; sell first, then buy back. For example, bearish on stocks, short index futures; bearish on commodities, initiate short positions.

Step 8: Set Strict Stop-Loss and Take-Profit

This is the most overlooked and deadly step for beginners.

Advice for beginners:

• Set relatively tight stop-losses to protect capital
• Keep position sizes small to reduce risk per trade
• Set reasonable take-profit targets and close positions timely

Important reminder: No matter how many times you are right, one big loss can wipe out all gains. Discipline in stop-loss is more important than anything else.

Step 9: Gradually Adjust Strategies with Experience

Initially, follow your planned approach. As market experience grows, adjust stop-loss and take-profit levels based on actual market movements. But the core principle remains—risk management always comes before maximizing profits.

5. How to Trade Futures More Safely? Key Points

◆ A Complete Trading System is the Foundation for Profit — To succeed in futures, establish an executable and effective trading system, and follow it strictly

◆ Leverage Multiple Should Match the Underlying — Low-volatility assets (like exchange rates) can use higher leverage; high-volatility commodities (like stocks, oil) should use lower leverage

◆ Practice Good Capital Management — Risk no more than 2% of total capital per trade; avoid over-leverage

◆ Regular Review and Reflection — Record each trade’s entry and exit points, reasons for profit or loss, and continuously improve

6. An Alternative: Contracts for Difference (CFD)

If you find futures too complex or risky, CFDs might be more suitable for retail traders.

CFDs are contracts between buyer and seller based on the spot price, settled by price difference. Compared to futures:

◆ No Expiration Date — No worries about forced settlement at expiry
◆ Rich Variety of Trading Instruments — Stocks, forex, crypto, commodities, and more
◆ Flexible Contract Specifications — Choose trading lots (e.g., 0.01-30 lots) and leverage (1-200x) freely
◆ Lower Entry Costs — Margin requirements are relatively lenient

But CFDs carry similar leverage risks. Proper control of leverage, trading plans, and setting stop-loss and take-profit are essential.

7. Final Advice on Futures Trading

The futures market is full of opportunities, but for traders lacking discipline, it can be a meat grinder. How to buy futures is just the starting point; the real test is whether you can stick to trading discipline, withstand psychological pressure, and learn from losses.

Recommendations for beginners:

1. Practice with a demo account for at least 2-3 months
2. Use mini futures for small real-money trades
3. Maintain humility and keep learning market knowledge
4. Always prioritize risk management over profits

Only by doing so can you survive and profit in the long run in the futures market.