Market Insights

Financial markets are entering a time of potential turmoil, with uncertain timing of news events and price moves. Traders may react by turning to futures.

Futures are securities that track an underlying index or market virtually around the clock. Traders can take “long” positions to benefit from prices rising, or “short” positions to profit from a decline. Unlike stocks or exchange-traded funds (ETFs), they don’t own shares. Customers simply hold capital in their accounts and watch its value increase or decrease based on their positions.

While there is always risk in the market, current situations may be especially suited for security futures. After all, company events like earnings and conference are typically scheduled. Traders also know where to look for information, like to news and social-media channels. We can’t be sure which way they’ll move, but we have a decent idea what to watch for and when to look. That makes them ideal to follow with company shares and options.

Events like today’s election, on the other hand, don’t follow such a clear schedule. Winners won’t be known until this evening — or perhaps much later. Candidates and parties could make competing claims at unexpected times or pursue litigation. It’s also hard to plan for geopolitical risk such as conflict in the Middle East, which could occur in the middle of the night for U.S. markets. (After all, countries like Israel and Iran are on the other side of the planet.)

This uncertain timing could make security futures a handy tool for some traders looking to react to rapid moves. These instruments could also be useful because they track some of the big macro-level products that could be impacted by political events, like oil, gold and stock indexes. They often swing based on emotions — both positive and negative — more clearly than individual stocks. Still, it’s important to remember that futures can be highly volatile and are therefore risky.

Understanding Futures

While futures may offer certain advantages, traders need to thoroughly understand their mechanics and specifications before using them. Different products deliver different values based on moves (according to their multipliers). There are different expiration dates (monthly or quarterly), different trading hours and different settlement procedures. Traders should also grasp margin requirements, which govern the amount of capital needed to take and hold positions.

Each futures contract has a unique root, similar to a stock ticker. This is followed by a month code for its expiration and the the expiration year. For example, the current E-mini S&P 500 futures contract is ESZ24, expiring in December 2024. The root is “ES” and Z is the month code. The year is 24.

For easier charting, TradeStation customers can view some futures with continuous contracts by adding @ before the root. This combines previously expired contracts into a single ticker for select products. They may also consider using advanced tools like Matrix, which is specially designed for buying and selling security futures.

The table below lists some of the most actively traded futures products, based on average volume and open interest. Some “micro” versions, one-tenth the size of the standard contracts, are also included.

Security futures are not suitable for all investors. To obtain a copy of the security futures risk disclosure statement visit www.TradeStation.com/DisclosureFutures. 

Margin trading involves risks, and it is important that you fully understand those risks before trading on margin. The Margin Disclosure Statement outlines many of those risks, including that you can lose more funds than you deposit in your margin account; your brokerage firm can force the sale of securities in your account; your brokerage firm can sell your securities without contacting you; and you are not entitled to an extension of time on a margin call. Review the Margin Disclosure Statement at www.TradeStation.com/DisclosureMargin.