Starting from Zero: A Trading Guide and Risk Tips You Need to Know

Why Do Futures Exist? Understanding the Essence of This Financial Tool First

Futures are not complicated; they are essentially a contract where both parties agree to trade at a predetermined price at a future date. This concept originated in agricultural societies—farmers worried about prices crashing during harvest, and merchants worried about not being able to buy grain during poor harvests. So, both sides signed contracts to lock in future trading prices and quantities. This risk hedging idea evolved into today’s futures system in modern financial markets.

The reason futures attract investors lies in their three key features:

• Trade with only a margin deposit (usually 5-10% of the underlying asset’s value), known as leverage trading
• Bidirectional operation, allowing both bullish (long) and bearish (short) positions
• Low transaction costs and high liquidity, especially in international futures markets with many participants and minimal bid-ask spreads

However, because of leverage, both gains and losses are amplified—this is the most critical aspect to be cautious about in futures investing.

What Does a Futures Contract Look Like? Focus on These Key Elements

A standard futures contract includes the following information:

Currently, the largest global trading volume is in U.S. stock index futures (S&P 500, Dow Jones), followed by commodities like crude oil and gold.

Futures vs Spot: What Are the Differences?

Many beginners confuse futures with spot trading, but the differences are clear:

Spot = You buy a tangible asset (stocks, gold, oil), and once paid, you own it
Futures = You buy a contract that stipulates a future transaction; now you only need to pay a margin

Comparison table:

Example: If you are bullish on a stock, buying spot means spending 100,000 yuan to buy it; in futures, you only need 10,000 yuan margin to control a futures contract worth 100,000 yuan. If prices rise, profits are magnified; if they fall, losses are also amplified—this is the double-edged sword of futures.

What Are the Types of Futures? How Do Investors Choose?

The most common underlying assets in international futures markets are divided into six major categories:

1. Index Futures

S&P 500, Nasdaq 100, Dow Jones Industrial Average, etc. Popular among retail traders due to high liquidity and transparency.

2. Energy Futures

Crude oil, gasoline, heating oil, natural gas. Highly volatile, suitable for traders with strong risk tolerance.

3. Metal Futures

Gold, silver, copper, platinum. Usually used for asset allocation and risk hedging.

4. Agricultural Futures

Wheat, corn, soybeans, cotton, coffee, sugar, etc. Relatively moderate volatility, suitable for medium- to long-term trading.

5. Interest Rate Futures

Government bond futures of various maturities (2-year, 5-year, 10-year, etc.). Sensitive to interest rate changes, mainly participated in by institutional investors.

6. Forex Futures

Currency pairs like USD, EUR, JPY. Traded around the clock with high liquidity.

Beginners are advised to start with index futures or commodity futures, as these have clear fundamental drivers, making them easier to understand and predict.

How to Trade Futures? Master the Core Logic of Going Long and Short

Futures trading involves two main operations:

Going Long (Buy to Rise)

You predict the underlying asset will go up, buy a futures contract now, and sell it later at a profit.

Practical example:

• You are optimistic about the U.S. economy and expect the S&P 500 to rise, so you buy the S&P 500 futures
• Suppose you buy 1 lot at 3800 points, with a margin of 30,000 yuan
• Two weeks later, the S&P 500 rises to 3900 points, and you sell, earning the 100-point difference
• Since 1 point = $100, this trade earns $10,000, with only 30,000 yuan margin invested

Going Short (Buy to Fall)

You predict the underlying asset will decline, sell a futures contract first, and buy it back later at a lower price to realize profit.

Practical example:

• You believe crude oil inventories are high, and oil prices will fall, so you sell crude oil futures
• Suppose you sell at $70/barrel, with a margin of 20,000 yuan
• One week later, oil drops to $65/barrel, and you buy back to close, earning a $5 difference
• Since 1 lot of crude oil futures represents 100 barrels, this results in a profit of $500

Key point: Short selling in futures does not require borrowing (unlike stock margin trading); you can operate directly on the trading platform, which is an advantage over stocks.

Three Essential Things to Do Before Investing in Futures

1. Choose a Regulated Trading Platform

Futures must be opened through licensed futures brokers or securities firms. For international futures, select reputable trading platforms. A good platform should be regulated, have qualified credentials, provide accurate quotes, fast execution, reasonable and transparent fees, and offer comprehensive risk management tools.

2. Test Strategies with a Demo Account

99% of futures platforms offer demo accounts, which are the best learning tools. Before risking real money, repeatedly test your trading strategies with virtual funds to verify if they can generate consistent profits. Beginners should aim to complete at least 50 simulated trades to build market intuition.

3. Develop a Strict Risk Management Plan

This is the key to survival in futures trading. Before entering a trade, set:

• Stop-loss: the price at which you will close the position to prevent further loss (usually 2-5% of entry price)
• Take-profit: the profit target to exit the trade decisively
• Per-trade risk control: limit each trade to losing no more than 1-2% of your account balance
• Overall leverage: do not use all margin; keep more than 50% of idle funds to handle unexpected events

Why Are Futures Dangerous? Deeply Understanding the Risk Mechanism

Leverage Amplifies Risks

This is the biggest trap. 20x leverage means a 5% decline can wipe out your margin. Many newcomers underestimate leverage, leading to forced liquidation (margin call).

Losses Can Exceed Principal

Unlike stocks, where the worst case is losing your invested capital, futures can result in negative account balances if markets move sharply (e.g., sudden policy shocks), meaning you owe money to the broker beyond your initial margin.

Contracts Have Expiration Dates

Futures are not “buy and hold forever.” You must close or roll over contracts before expiry. Forgetting this can lead to forced liquidation at current market prices, often in unfavorable conditions.

Psychological Pressure

The high volatility and leverage mean profits or losses can reach thousands of dollars per minute. Insufficient psychological resilience can lead to poor decisions, such as adding to losing positions.

The Hedging Power of Futures: Protecting Existing Assets

Although risky, futures are the most powerful hedging tools when used correctly.

Core logic of hedging: Use short futures positions to offset risks in the spot holdings.

Practical scenario:

• You hold a stock portfolio worth 1 million yuan, optimistic about the long-term but worried about short-term market correction
• You can sell S&P 500 futures to hedge
• If the market declines, your stock losses are partially offset by gains in the futures short position
• If the market rises, your stocks gain value, and although the futures position incurs a loss, your overall portfolio still benefits

This approach is especially useful before long holidays or major events (like Federal Reserve meetings).

CFD (Contract for Difference): An Upgraded Flexible Version of Futures

If futures are “standardized contracts,” CFDs (Contracts for Difference) are an upgraded version designed specifically for retail traders.

CFD vs. Futures, which is more suitable for you?

Advantages of CFDs:

• Rich variety of assets: includes stocks, cryptocurrencies, bonds, etc.
• Flexible contracts: trade small lots (0.01, 0.1) or large (30 lots)
• Leverage autonomy: high leverage for low-volatility assets like forex; lower leverage for high-volatility assets like stocks—completely controlled by traders
• No delivery pressure: no expiry date, can hold as long as desired

Risks of CFDs:

CFDs carry risks similar to futures, including leverage risk and potential losses exceeding initial margin. The key is to implement proper risk control and trading plans.

Summary: Futures Are Not a Get-Rich-Quick Tool

Many are attracted to futures because they hear stories of quick wealth, but they overlook a harsh reality: Some people go bankrupt trading futures.

The correct use of futures involves:

1. Short-term traders: engaging in speculative trading, requiring solid technical analysis and mental resilience
2. Long-term investors: using futures as hedging tools to protect existing assets, not as primary investment vehicles
3. Risk managers: balancing downside risk of portfolios through short futures positions

Final advice: Before risking real money, practice thoroughly with demo accounts, establish clear trading rules, strictly follow stop-loss and take-profit levels, and always remember that leverage is a double-edged sword. Trading futures is not gambling; it’s a battle with risk—those who respect risk can survive longer.