Complete Beginner's Guide to Futures Trading | 9 Key Steps from Introduction to Practical Application

To master futures trading, you must first understand: futures are not just simple buying and selling games, but a strategic investment battle requiring discipline, systems, and risk awareness. This guide will take you from zero to a clear understanding of the core logic, practical steps, and hidden risks of futures trading, helping you prepare thoroughly before entering the market.

What are Futures? A 5-Minute Quick Overview

Futures are essentially contracts. Buyers and sellers post prices on an exchange; one buys, one sells, agreeing to transact at a predetermined price on a specific future date. It sounds simple, but the core of futures trading is this “future” promise.

The underlying assets for futures can be commodities (oil, gold, wheat), exchange rates, stock indices, bonds, and any financial asset. Traders don’t need to settle immediately—just deposit a certain margin as collateral, controlling a contract value far exceeding their capital—this is leverage, and it’s both powerful and risky.

Simple comparison:

• Buying stocks: spend NT$100,000 to control NT$100,000 worth of assets
• Buying futures: deposit NT$5,000 margin to control NT$50,000 contract value

This “small amount controlling a large position” feature attracts many investors but also leads many to suffer losses.

5 Key Futures Features Every Beginner Must Know Before Entering

Before learning how to trade futures, remember these five points—they determine whether futures trading suits you:

1. Margin Trading + Leverage Amplification
You only need to pay an initial margin (usually 5%-15% of contract value) to trade. The benefit is high capital efficiency; the downside is losses are magnified—50% loss may trigger margin calls or liquidation.

2. Long and Short Trading Are Both Possible
In stock markets, short selling is difficult (requires borrowing), but in futures, shorting is as easy as going long. Bullish? Buy. Bearish? Sell. Flexibility far exceeds stocks.

3. Contracts Have Expiry Dates
Futures cannot be held indefinitely; they must be closed or rolled over before expiry. This means you need to watch expiry dates—unlike stocks, you can’t just hold forever.

4. Intraday Trading Is Flexible
Unlike stocks that require T+2 settlement, futures can be bought and sold on the same day, even seconds apart. This flexibility is a key reason many traders enter the futures market.

5. Lower Commissions Than Stocks
Futures trading costs are much lower, appealing to frequent traders, but this can also tempt beginners to overtrade, risking losses.

Choosing a Futures Broker and Opening an Account | Exchanges, Product Types, Margin Details

Major Global Futures Exchanges

Your trading options depend on the exchange. Taiwan’s main venue is the Taiwan Futures Exchange, primarily for Taiwan stock index futures. For international futures (US indices, oil, gold, etc.), you need to choose global exchanges like CME (Chicago Mercantile Exchange), NYMEX (New York Mercantile Exchange), COMEX (New York Commodity Exchange), etc.

Taiwan vs. International Futures

Taiwan Market:

• Pros: Familiar environment, strict regulation, trading hours aligned with local routines
• Cons: Limited product variety (mainly Taiwan index, electronic index, some stock futures)

International Market:

• Pros: Rich variety (indices, oil, agricultural products, metals, currencies), high liquidity
• Cons: Need international accounts, time zone differences, currency risk

Opening an Account & Funding | Margin Figures

The process is similar whether domestic or international:

1. Choose a broker (Taiwan: Yuanta, KGI, Fubon, Cathay; International: Mitrade, Interactive Brokers, TD Ameritrade, etc.)
2. Submit online application
3. Sign agreement
4. Deposit margin (via bank transfer)
5. Get trading account and login credentials

Margin examples (based on Yuanta 2025 data):

Beginners are advised to start with mini or small contracts due to lower margin requirements.

9 Practical Steps to Trading Futures

Step 1: Understand Your Market and Instruments

Before entering, grasp that you’re trading expectations of a market, not just price movements. Focus on liquid contracts close to expiry (long-dated contracts have less liquidity and wider spreads).

Step 2: Decide Your Trading Style—Long-term vs Short-term

Long-term investors:
Use futures mainly for hedging existing stock positions, not as primary investments. If you hold stocks for 5 years, short-term volatility and expiry can be frustrating.

Short-term traders:
Futures’ intraday flexibility, dual-direction trading, and low fees suit active trading. But it demands discipline and systematic approach.

Step 3: Open Demo Account & Practice

This step is often overlooked but crucial. Many brokers offer demo accounts with virtual funds. Practice for at least 2-4 weeks until your strategy proves profitable in simulation. Only then consider real trading.

Common mistake: rushing into real money trading without sufficient practice, leading to emotional mistakes and losses.

Step 4: Select Futures Contracts to Trade

Futures can be categorized into six main types:

• Indices: S&P 500, Nasdaq 100, Taiwan Weighted, VIX
• Interest Rates: US Treasuries (2, 5, 10-year), Eurozone rates
• Agricultural: Wheat, corn, soybeans, cotton, cocoa, coffee
• Metals: Gold, silver, copper, platinum
• Energy: Crude oil, heating oil, gasoline, natural gas
• Soft commodities: Orange juice, sugar

Most popular are index futures (liquidity, stability) and crude oil (global focus).

Step 5: Develop Entry Signals & Entry Rules

Finding reliable signals is key. Use:

• Fundamental analysis: economic trends, policy changes, news
• Technical analysis: candlestick patterns, moving averages, RSI, MACD
• Statistical arbitrage: based on historical data and patterns

Aim to enter before the trend fully develops for better risk-reward.

Step 6: Decide Long or Short

Long (bullish):
Expect price to rise. Example: bullish on US stocks due to Fed rate cuts, buy S&P futures.

Short (bearish):
Expect decline. Example: anticipate oil prices dropping due to oversupply, sell crude futures.

Step 7: Set Stop-Loss & Take-Profit

This is often overlooked but critical.

• Stop-loss: limit potential losses—since futures leverage can wipe out your capital quickly, always set a stop-loss at a predefined level.
• Take-profit: lock in gains before market reverses.
• Advice:
  • Use a stop-loss of 10-15% of your capital per trade
  • Keep position sizes small (5-10% of total capital)
  • Adjust as you gain experience

Step 8: Execute the Trade

Use your broker’s electronic platform to input:

• Contract code (e.g., FITX)
• Buy or sell
• Quantity (number of contracts)
• Price (limit or market order)
• Stop-loss and take-profit levels

Step 9: Monitor & Exit Timely

After entering, keep watching:

• Price movement relative to your plan
• Whether stop-loss or take-profit is hit
• New risk signals

Close positions immediately when targets are reached—don’t wait for a reversal.

5 Major Deadly Risks in Futures Trading

Risk 1: Leverage Is a Double-Edged Sword

Leverage magnifies both gains and losses. A 10% adverse move can wipe out your entire margin and cause liquidation.

Example: Using NT$10,000 margin to control NT$500,000 in Taiwan index futures, a 2% drop (5,000 points) results in total loss of your margin.

Risk 2: Unlimited Liability

Unlike stocks, where losses are capped at your invested capital, futures can lead to losses exceeding your margin—potentially owing money to the broker during extreme moves.

Historical cases show traders losing more than their initial deposit in volatile markets.

Risk 3: Overtrading Due to Low Fees

Low transaction costs tempt frequent trading. Overtrading increases costs and risk of large losses. Studies show 98% of day traders lose money.

Risk 4: Lack of Discipline

Many know they should set stop-losses but fail to execute when losses mount, hoping for a rebound. This often results in bigger losses. Discipline and system adherence are vital.

Risk 5: Contract Expiry & Rollovers

Futures have expiry dates; failing to close or roll over contracts leads to forced liquidation or unfavorable rollovers. Ignoring expiry can cause unexpected losses.

Pros and Cons of Futures Trading

5 Major Advantages

1. High Leverage: Control large positions with small capital, ideal for ambitious investors.
2. Both Directions: Profit from rising and falling markets.
3. Hedging Tool: Protect existing stock holdings against short-term declines.
4. High Liquidity & Transparency: Large trading volumes, tight spreads.
5. Low Transaction Costs: Suitable for active traders.

5 Major Disadvantages

1. High Risk: Leverage and volatility can wipe out capital quickly.
2. High Entry Barriers: Requires substantial knowledge, experience, and psychological resilience.
3. Standardized Contracts: Limited flexibility in contract specifications.
4. Carrying Costs: Margin calls and continuous funding increase costs.
5. Expiry & Rollover: Need to manage contract expiry, adding complexity.

CFD (Contract for Difference): A Flexible Alternative

If futures seem too risky or rigid, consider CFDs—derivative contracts that mirror futures but with more flexibility.

CFD Trading Tips:

• Control leverage carefully; avoid excessive risk.
• Have a clear trading plan: entry, stop-loss, take-profit.
• Diversify to manage risk.

What Does Success in Futures Require?

Regardless of your strategy, success hinges on:

1. Complete Trading System

Includes entry signals, risk controls, position sizing, and exit rules. Test thoroughly via demo trading and strictly follow the system.

2. Discipline & Mindset

Knowing what to do isn’t enough—execution is key. Emotional discipline prevents impulsive decisions during losses or gains.

3. Continuous Learning & Optimization

Markets evolve; your system must adapt. Regularly review trades, identify mistakes, and refine your approach.

4. Sufficient Capital & Psychological Resilience

Be prepared for drawdowns and streaks of losses. Adequate capital and mental toughness are essential for survival.

Final Advice: The Last Word on Futures Trading

Futures may seem simple—buy low, sell high—but they test your knowledge, discipline, and mindset. Many beginners are lured by leverage, only to be overwhelmed by risk and end up with heavy losses.

If you choose to step into futures:

• Practice extensively with demo accounts until your system is profitable.
• Develop clear rules for entry, exit, and risk management—and follow them strictly.
• Stay humble, keep learning, and adapt.
• Remember: losses are inevitable; controlling their size is the real skill.

Futures are not just a stepping stone—they can be a fast lane to wealth or a quick route to bankruptcy. The choice is yours, but you must bear the consequences.