Futures Trading – Resources & Products from IBKR

Direct Market Exposure

• Futures as an asset class are important because the underlying commodity or product generally act as a barometer for the health of the macro economy. Prices tend to change based upon rising demand or shrinking supplies of specific goods.
• Traders use commodity markets tied to goods that are used in manufacturing, building and to power economies. Many traders tend to buy and sell commodity futures aiming to capitalize on advantageous price movements in response to changing news about the global economy.
• As the global economy picks up steam, commodity prices tend to rise offering speculators direct exposure to a physical commodity without ever having to own it. Through the economic value chain, changes in commodity prices can have immediate impact on stock indices, foreign exchange rates, interest rates and food items. To this extent, futures markets are unrivaled.

Capital Efficiency

• Futures trading occurs in a margin account. A commodities broker freezes an amount per contract set by the exchange in a client’s account in order to maintain a position in the futures market.
• As the price of the future fluctuates, changes in the value of the futures contract are credited to or debited from the client’s account. The amount of margin frozen by the broker is used to protect it and the exchange from excessive losses should the price of the contract move adversely.
• Margin accounts are typically associated with the idea of leverage, which means that a smaller amount of capital maybe used to control a larger underlying investment. The associated leverage in the futures market depends upon how volatile each commodity or financial asset has been over its recent history.
• Generally speaking, futures contracts may allow leverage of four-to-one, which means that $25,000 in margin will allow control over $100,000 worth of an underlying asset. This makes futures markets capital efficient.