Futures Trading: Concepts & Strategies
- Live Trading
- Learning Track
- Prerequisites
- Syllabus
- About author
- Testimonials
- Faqs
Apply Futures Trading Strategies
- Create and backtest trend-following and counter-trend strategy.
- Manage risks effectively through diversification.
- Describe the need for position sizing and capital allocation as per the volatility parity approach.
- Analyzing the performance of the futures trading strategy using various measures such as drawdown plots, returns graphs, and Sharpe ratio.
- Explain term structure in the futures market and distinguish the futures market in backwardation or contango.
- Calculate implied yield and implement a term structure strategy.
- Explain futures market basics such as standardization, clearing, margin, speculators, expiry date, the first notice date, open interest, and limited life span.
- Live trade or paper trade trend following strategy and practice the concepts learned through a capstone project.

Skills Required for Futures Trading
Strategies
- Trend Following
- Counter Trend
- Term Structure
- Position Sizing
Python
- Pandas, Numpy
- Matplotlib
- Datetime, TA-lib
- While Loops
Concepts and Trading
- Futures Continuation
- Diversification
- Position Sizing
- Implied Yield, Margin, Notional and P&L Calculations

learning track 3
This course is a part of the Learning Track: Quantitative Trading in Futures and Options Markets
Course Fees
Full Learning Track
These courses are specially curated to help you with end-to-end learning of the subject.
Course Features
- Community
Faculty Support on Community
- Interactive Coding Exercises
Interactive Coding Practice
- Capstone Project
Capstone Project Using Real Market Data
- Trade & Learn Together
Trade and Learn Together
- Get Certified
Get Certified
Prerequisites
It is expected of you to have some financial markets experience. We have used Python for coding the strategies, however, Python is not a mandate to do this course. You can also replicate the models in spreadsheets or any other trading software language you are comfortable with.
Futures Trading Course
- IntroductionMr. Andreas Clenow, Chief Investment Officer of Acies Asset Management, assures you that futures trading is one of the simplest to understand and yet quite effective in the markets. You will go through the course structure and understand how the course is structured in the form of videos, quizzes, strategy codes and capstone projects. This will make sure that not only do you understand the mechanics of futures world, but also implement real world trading strategies in live markets.
Futures Contract
Futures contract is an obligation to buy or sell a specific asset at a predetermined price, at a predetermined date. In this section, you will learn what makes a futures contract unique. It talks about how speculators trade in the futures market, only to make economic gains. You will see what are the different assets that can be traded in the futures market. You will also learn about the properties of futures contracts.What Makes Futures Unique?3m 37sFeatures of Futures Contract2mAssets in Futures Market2mSpeculators2mProperties of Futures2m- Standardisation & ClearingFutures contracts are standardised and hence, enables you to trade in different assets without having an expertise in the traded material. This section will help you understand how the details like quality, quantity, place and time of delivery are regulated by a futures contract. Later in the section, you will also learn that the futures contract is an agreement between two parties. This agreement is centrally cleared by a clearing house.Standardisation2m 44sAttributes Regulated by Futures Contract2mClearing1m 37sAdvantages of Centralised Clearing2mRoles of Clearing House2mZero Sum Game2m
Futures Specific Properties
To deal in the futures market, you need to know a set of standard properties for all futures markets. Knowing these properties will help you effectively treat all the futures markets in the same way. In this section, you will learn about the specific properties like the root symbol, month, ticker, expiry date, first notice date, margin and execution terminology.Futures Specific Properties I2m 18sRoot Symbol2mDelivery Months2mTicker2mInterpret the Ticker2mFutures Specific Properties II2m 31sDelivery Date of a Futures Contract2mMargin2mTest on Futures Contract, Standardisation & Clearing and Futures Specific Properties16mFutures Profit and Loss
Calculation of profit and loss on futures position works differently from other asset classes. Before creating a trading strategy, it is essential to understand the logic behind futures profit and loss calculation. In this section, you will learn about the concepts such as point value, mark to market and learn to calculate futures PnL with examples. Further in the section, you will learn about the effect of currency on futures PnL. You will also compare currency exposure on futures and stocks.Futures PnL Calculation4m 27sWhat is Point Value?2mCalculate Futures PnL2mCalculate Daily Futures PnL2mHow to Use Jupyter Notebook?2m 5sCalculate Futures PnL in Python10mGetting Started with Interactive Exercises5mRead Gold Futures Data5mCalculate Daily Price Change5mCalculate Daily PnL5mCalculate Cumulative PnL5mPlot Cumulative PnL5mFutures and Currency Exposure3m 59sRelationship Between Futures and Currency2mCalculate Realised PnL on Futures Position2mCalculate PnL on Stocks Position2m- Futures MarketFutures contracts are each based on different underlying assets. These can be based on physical commodities, like the agricultural and non agricultural commodities. The futures can also be based on the interest rates and currency exchange rates. Apart from these, the futures contract can even be based on the equity index value! In this section, you will learn about the various sectors on which the futures contracts are based. You will also learn about the deliverable and non-deliverable contracts, and the first notice date concept in the futures market.Futures Sectors: Overview4m 10sEquity Index Futures2mCurrency Futures2mRates Futures2mYield and Price2mFutures in the Commodity Sector3m 21sAgricultural Commodities2mAgricultural Commodity Futures2mDeliverability of Commodity Futures2mFirst Notice Date2mNon-agricultural Commodities2mNon-agricultural Commodity Futures2mVolatility in Futures Contracts2m
- Futures DatasetAll the futures contracts have a futures chain. In this section, you will learn how to read the futures chain. The futures chain is like a snapshot of the futures trading activity in a particular asset. You will also learn about the importance of a definite expiry date in the futures contract. The definite expiry date gives a lot of opportunities in terms of trading but is also problematic when you are trying to perform long term analysis on the data. You will understand how the same commodity can be traded at different prices for contracts expiring on different dates.Futures Data4m 1sFutures Chain2mVolume and Open Interest2mChange in Open Interest: Writing Contracts2mChange in Open Interest: Settling Contracts2mThe Issue of Limited Life Span2m 25sBuy and Hold Futures2mPredictable Life Span2mPrice Difference in Futures Contracts3m 31sPrice of Different Futures Contracts2mStitching Time Series2mFutures Active Trading2mLimited Life Span Problem2m
- Futures ContinuationsTo overcome the issue of the limited life span, different ways have been suggested to build a continuous price line of the same asset, in spite of different expiry dates. You will explore both the good and bad methods of building futures continuations. Finally, you will understand why the proportional adjustment method is good for analysis.Default Futures Continuations3m 29sProperties of Continuations2mOther Methods of Futures Continuation2m 31sConstruction of Continuations2mLimitations of Add and Subtract Method2mProportional Adjustment Method2mAdvantage of Proportional Adjustment2mOptimal Choice for Continuations2mAdditive Adjustment10mAdditive Adjustment Factor5mAdjustment Factor for the First Contract2mAdjustment Factor for the Second Contract2mProportional Adjustment10mProportional Adjustment Factor2mSources for Futures Data10mTest on Futures Profit and Loss, Futures Market, Futures Dataset and Futures Continuations20m
Analysing Tradable Assets
A very common problem with new traders is that they analyse one thing, and then trade the other. Like the index is analysed, and the futures are traded. This section highlights the importance of performing the correct analysis of tradable assets. With an example of an index and its continuous futures contract, you learn the importance of trading what you analyse.Trade What You Analyse3m 28sTradable Assets2mFutures and Underlying2mFutures Trading Concept3m 53sTrend Following Introduction
This section talks about the history of the trend following strategy. Further, it discusses the principle behind creating a robust trend following strategy. It explains the logic behind the successful and profitable trend following models with the help of a rolling dice game. Further in the process, you will also learn about the calculation of the expected value.Trend Following Background2m 47sHistory of Trend Following2mTrend Following Facts2mPrinciples of Trend Following4m 14sTrend Following Logic2mPercentage of Winning Trades2mExpected Value of Game2mExpected PnL Calculation10mProfitability of a Game2mProfitability of Trend Following2m- Trend Following EntriesIn creating a robust trading model, both entry and exit rules are important. In this section, you will learn about the entry rules to buy and sell in the trend following model. It discusses the importance of a trend filter and trend breakout to buy and sell. You will also learn to code and visualise the entry points in Python.Trend Following Entries3m 9sTrend Following Entry Logic2mPurpose of Dual Moving Average2mPositive Trend2mPurpose of Breakout2mPurpose of Trailing Stop Loss2mCode Trend Following Entries10mCalculate Exponential Moving Average5mDefine Trend5mLong Entry5mConditions for Short Entry2m
Risk Management
Measuring risk is very critical for any trading approach. In this section, you will learn about financial risk and how these risks are measured. Further, you will see that to manage risk, it is very important that each position you hold has an equal impact on your portfolio. This section explains why we should allocate more to the slow moving markets and less to the fast moving markets. It explains the concept of actual risk exposure and the notional value. Further, you will also learn how futures markets are different from the cash markets. You will also apply the learnings and calculate the position size for two assets in order to allocate equal risk to both.Financial Risk Primer2m 8sFinancial Risk Management2mImportance of Time in Risk Management2mLimitations of Allocating Equal Amount2mMeasuring Financial Risk Using Volatility2m 22sPurpose of Volatility Parity Position Sizing2mPosition Allocation3m 57sVolatility Parity Position Sizing2mLeverage in Futures Space2mRisk Factor2mNumber of Contracts2mPosition Allocation Using Python10mDaily Dollar Variation of a Contract5mTarget Daily Variation5mNumber of Contract5mNotional Dollar Value5mTrend Following Exits
The exit rules for the trend following strategy are discussed in this section. A pullback indicator is calculated which exits the position if the market moves against our position by a threshold value. The overall strategy position for trend following is calculated by combining the entry and exit signals.Trend Following Exits2m 8sPurpose of Trend Following Stops2mDrawback of Profit Targets2mSetting the Stop Distance2m 55sDrawback of Fixed Percent Stops2mDrawback of Fixed Dollar Stops2mCalculating Trend Exit2mTrend Following Exits: Single Asset10mRolling Volatility5mRolling Maximum Price5mLong Exit5mCarry Forward the Position5mPullback for Bearish Trend2m- Trend Following Analysis on Single MarketsThere are trading strategies that work well on both individual markets and portfolios of markets. This section discusses the trend following model rules for entry and exit on the individual markets. Further, you will apply these rules on the Palladium futures price and analyse the backtest results.Trend Following Rules1m 57sTrend Following Rules Flowchart10mEnter the Position2mTrend Following on Single Markets3m 17sConclusion from Backtest Results2mStrategy Returns for Trend Following10mTotal Positions5mStrategy Returns5mCumulative Strategy Returns5mPlot Cumulative Strategy Returns5m
Diversification in Trend Following
The trend following strategy works best when the portfolio is diversified. This section highlights the importance of diversification for obtaining good results using trend following strategies. For illustration purposes, a sample strategy is implemented on multiple assets and analysed.The Power of Diversification3m 2sTrend Following Backtest Performance2mDiversified Portfolio Backtest2mTrend Following Strategy on Multiple Assets10mInverse Volatility5mInverse Volatility Weights5mVolatility Weighted Returns5mPortfolio Returns5m- Strategy AnalysisAnalysing your strategy is very important to safeguard your capital. Return is not the only metric that can help you in understanding the performance of your strategy. In this section, you will learn the importance of analysing your strategy through thorough backtesting. It talks about various metrics, like Sharpe ratio and maximum drawdown, and rolling analysis. Further, it talks about how the number of winning trades are much smaller than the number of failing trades. And yet, the less winning trades results in net profit. It also explains how optimising the rules of a strategy will lead to overfitting.Strategy Analysis4m 24sAnalysing Strategy Returns2mConclusions on Strategy2mTrend Following Trades2mInterpret the Graph2mLimitations of Trend Following Trades1m 56sLosing Trades in Trend Following Strategies2mDrawbacks of Doubling the Stop Loss2mBacktested Results from Diversified Market2mBacktested Results from Single Market2mOptimising the Rules2mStrategy Analysis10mLog-scale Axis5mAnnualised Returns2mAnnualised Volatility2m
- Counter Trend ModelsIt is often seen that the trend following strategy stops out too early and too often. The counter trend strategy attempts to overcome this problem by entering into a position when the trend following strategy exits. You will learn how counter trend models try to capture the continuation of a trend, after the trend following strategy stops out.Counter Trend Models2mCounter Trend Nomenclature2mCounter Trend Logic2mCounter Trend Features2mDiversification in Counter Trend2m
- Counter Trend EntriesIn this section, you will learn about the importance of the entry points in the counter trend models. In the trend model, the exit is followed by an immediate entry signal, which leads to frustration in the trend followers. The section explains how the counter trend model overcomes this issue by reversing the logic of the trend model. It also explains the concept of pullback. Further, you will apply the learnings to generate your own entry signals on the S&P 500 Total Return index.Counter Trend Entries2mEntry Logic2mTrend Filter2mTrend Pullback2mNeed for Trend Filter2mMeasuring Trend Pullback2mTrend Pullback Using Volatility Method2mEntry Signal10mCalculate the Pullback5mGenerate the Entry Signal5m
- Counter Trend ExitsExperimenting with the exit rules is very important in order to create a proper exit rule. This section will walk you through a simple exit rule. It will explain how the model ends up with a reasonable profit even for a simple exit rule. You will further apply the learnings to generate your own exit signals.Counter Trend Exits2m 41sIdentify Exit Point for a Long Trade2mExit Rule2mCounter Trend Exits10mExit Logic: Position Held for a Month2mExit Logic for a Long Position2m
- Counter Trend Strategy AnalysisThe returns of the counter trend strategy are analysed in this section. You will learn how this strategy not only outperforms the benchmark but also performes well in equity bear markets.Counter Trend Strategy Analysis1m 36sCounter Trend Strategy Performance2mCounter Trend Performance Comparison2mTest on Trend-Following and Counter-Trend Strategies14m
- Term StructureThe concept of term structure trading is quite different from anything you may have seen with stocks, currencies or other common asset classes. In this section, you will learn about contango and backwardation structure and visualise them. Next, you will learn about annualised implied yield and its calculation in Python. Further, you will plot the implied yield to quantify the term structure which helps to make trading decisions.Futures Price and Delivery Dates3m 14sReason for Difference in Price2mIntroduction to Term Structure2m 37sInterpret Term Structure Graph2mInterpret Contango2mTerm Structure2mQuantifying Term Structure4m 17sPurpose of Annualising Term Structure2mAnnualised Term Structure Formula2mQuantification of Term Structure5mDays Between Spot and Futures Expiry5mPercentage Difference5mAnnualised Implied Yield5mTerm Structure Concept8m 29s
- Term Structure TradingIn this section, you will use the implied yield and open interest to decide if a contract that is further from the one nearing expiry can deliver more gains. Part of the gains will come from saving on the transaction cost of rolling over from the front contract to the one farther out. You will also look at the calendar spread strategy which considers the term structure as the sole indicator.Contract Selection2m 55sAnalysing Term Structure2mShorting Future Contracts2mCalendar Spread Strategy1m 30sAdvantages of Calendar Spread Strategy2mExamples of Application of Term Structure2mLong or Short in Calendar Spread Strategy2mCalendar Spread and Arbitrage2mPositions in Calendar Spread Strategy2mTiming the Exit of Calendar Spread Strategy2mTrading Term Structure3mTrading One Year from Current Futures2mUsage of Term Structure2mTerm Structure Strategy Analysis1m 36sTerm Structure Strategy Performance2mTerm Structure Performance Comparison2mTrading the Curve Presentation (Optional)10mTerm Structure Strategies13mTest on Term Structure14m
- Pushing Diversification FurtherThe concept of diversification using multiple assets is portfolio diversification. But we don’t know for sure which strategy to run for the assets in the portfolio. The concept of style diversification is introduced in this section where you learn that diversification of the strategy also results in a better return on investment.Pushing Diversification Further4m 54sStyle Diversification2mStrategy Performance2mDiversification Benefits2mPushing Diversification Further10mRebalancing Logic2mTest on Diversification, Risk Management and Strategy Analysis16m
- Run Codes Locally on Your MachineLearn to install the Python environment in your local machine.Uninterrupted Learning Journey with Quantra2mPython Installation Overview1m 59sFlow Diagram10mInstall Anaconda on Windows10mInstall Anaconda on Mac10mKnow your Current Environment2mTroubleshooting Anaconda Installation Problems10mCreating a Python Environment10mChanging Environments2mQuantra Environment2mTroubleshooting Tips For Setting Up Environment10mHow to Run Files in Downloadable Section?10mTroubleshooting For Running Files in Downloadable Section10m
- Live Trading on IBridgePyThis section gives an overview of live trading your strategies using IBridgePy. It includes details about the code structure, how to place orders, and the link to our free course on IBridgePy.Section Overview2m 2sLive Trading Overview2m 41sVectorised vs Event Driven2mProcess in Live Trading2mReal-Time Data Source2mCode Structure2m 15sImportant API Methods10mSchedule Strategy Logic2mFetch Historical Data2mPlace Orders2mIBridgePy Course Link10mAdditional Reading10mFrequently Asked Questions10m
- Automate Trading Strategy Using IBridgePyThis section includes a template for live trading which can be used on IBridgePy. The live trading strategy template is based on the strategies discussed in the course, modified to run in a live trading environment. A data subscription may be required based on the asset being traded in the strategy.Template Documentation10mLive Trading Strategy Template2m
- Capstone ProjectIn this section, you will undertake a capstone project on real-world data. This project will require you to apply and practice the concepts learnt throughout this course.Capstone Project: Getting Started10mProblem Statement10mFrequently Asked Questions10mCode Template and Data Files2mModel Solution: Futures Trading Capstone Project10mCapstone Solution Downloadable2m
- Course SummaryIn this section, you will go through the different concepts you learnt throughout the course. You will also be able to download all the strategy notebooks as a zip file. You can use these notebooks and modify its contents to create your own unique strategy.Conclusion2mPython Codes and Data2m
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Faqs
- When will I have access to the course content, including videos and strategies?
You will gain access to the entire course content including videos and strategies, as soon as you complete the payment and successfully enroll in the course.
- Will I get a certificate at the completion of the course?
Yes, you will be awarded with a certification from QuantInsti after successfully completing the online learning units.
- Are there any webinars, live or classroom sessions available in the course?
No, there are no live or classroom sessions in the course. You can ask your queries on community and get responses from fellow learners and faculty members.
- Is there any support available after I purchase the course?
Yes, you can ask your queries related to the course on the community: https://quantra.quantinsti.com/community
- What are the system requirements to do this course?
Fast-speed internet connection and a browser application are required for this course. For best experience, use Chrome.
- What is the admission criteria?
There is no admission criterion. You are recommended to go through the prerequisites section and be aware of skill sets gained and required to learn most from the course.
- Is there a refund available?
We respect your time, and hence, we offer concise but effective short-term courses created under professional guidance. We try to offer the most value within the shortest time. There are a few courses on Quantra which are free of cost. Please check the price of the course before enrolling in it. Once a purchase is made, we offer complete course content. For paid courses, we follow a 'no refund' policy.
- Is the course downloadable?
Some of the course material is downloadable such as Python notebooks with strategy codes. We also guide you how to use these codes on your own system to practice further.
- Can the python strategies provided in the course be immediately used for trading?
We focus on teaching these quantitative and machine learning techniques and how learners can use them for developing their own strategies. You may or may not be able to directly use them in your own system. Please do note that we are not advising or offering any trading/investment services. The strategies are used for learning & understanding purposes and we don't take any responsibility for the performance or any profit or losses that using these techniques results in.
- I want to develop my own algorithmic trading strategy. Can I use a Quantra course notebook for the same?
Quantra environment is a zero-installation solution to get beginners to start off with coding in Python. While learning you won't have to download or install anything! However, if you wish to later implement the learning on your system, you can definitely do that. All the notebooks in the Quantra portal are available for download at the end of each course and they can be run in the local system just the same as they run in the portal. The user can modify/tweak/rework all such code files as per his need. We encourage you to implement different concepts learnt from different learning tracks into your trading strategy to make it more suited to the real-world scenario.
- If I plug in the Quantra code to my trading system, am I sure to make money?
No. We provide you guidance on how to create strategy using different techniques and indicators, but no strategy is plug and play. A lot of effort is required to backtest any strategy, after which we fine-tune the strategy parameters and see the performance on paper trading before we finally implement the live execution of trades.
- What does "lifetime access" mean?
Lifetime access means that once you enroll in the course, you will have unlimited access to all course materials, including videos, resources, readings, and other learning materials for as long as the course remains available online. There are no time limits or expiration dates on your access, allowing you to learn at your own pace and revisit the content whenever you need it, even after you've completed the course. It's important to note that "lifetime" refers to the lifetime of the course itself—if the platform or course is discontinued for any reason, we will inform you in advance. This will allow you enough time to download or access any course materials you need for future use.
- Why Open Interest Matters to Traders?
Open interest is more than just a number — it gives insight into the market's participation and conviction.
- When OI Increases:
It means new positions are being created. If prices are also rising, it suggests bullish sentiment. If prices are falling, it indicates fresh bearish positions.
- When OI Decreases:
It means existing positions are being closed. Traders are exiting the market, reducing their risk or exposure.
- When OI Remains Stable:
It shows that there's no change in the number of open contracts. Existing traders are still in the market, but no significant new participation is occurring.
This information helps traders judge the strength of price moves. For example, a rally with increasing OI is more trustworthy than a rally where OI is falling (which might just be short covering).
- When OI Increases:
- What Are the Key Benefits of Futures Trading?
Futures trading offers several powerful benefits that attract traders ranging from institutional players to retail investors. Here are the main advantages:
BENEFIT
DESCRIPTION
Leverage High exposure with low capital requirement
Liquidity Quick trade execution, narrow spreads
Transparency Standardized contracts, regulated exchanges
Long/Short Flexibility
Profit in any market direction Hedging Reduce risk in stock or commodity portfolios
Diversification
Access to multiple asset classes (commodities, indices, etc.) Futures trading offers several benefits, but it also carries significant risks that traders must understand to manage their positions effectively
- What are the primary risks associated with futures trading?
Risk Type
Explanation
Impact
Leverage Leverage amplifies both profits and losses. A small move in price can have large consequences.
Magnified gains or losses, potentially exceeding margin.
Margin Calls If the value of the position falls below the required margin, a trader may be forced to add funds or face liquidation.
Forced liquidations, additional funds required.
Volatility Sudden market movements can cause sharp price changes, increasing both risk and opportunity.
Large swings in asset prices, unpredictable outcomes.
Liquidity RIsk Low liquidity in futures contracts can increase slippage and widen bid-ask spreads.
Poor execution, large spreads, slippage.
Contract Lifespan Futures contracts have expiry dates. Failure to manage them properly could lead to unexpected outcomes.
Forced delivery or unexpected costs.
- Who Decides the Price of a Futures Contract?
The price of a futures contract is not fixed by the exchange.
It is determined by market participants (buyers and sellers) through real-time trading on the exchange.
Just like stocks, futures contracts are listed on an order book.
- When demand to buy increases, price goes up
- When supply (selling pressure) increases, price goes down
This process is called price discovery and happens moment by moment as traders place orders based on:
- Their view of the future
- Spot market conditions
- Risk preferences
- Arbitrage opportunities
- What Influences Futures Prices?
While buyers and sellers set the price through their actions, several factors influence where the price settles:
1. Spot Price of the Underlying Asset: Futures generally trade close to the spot price but not exactly equal.
2. Time to Expiry: The further the expiry date, the more time for uncertainty. This affects pricing.Important: Unlike options, futures have NO TIME DECAY. The time factor affects pricing through cost of carry, not through premium erosion.
3. Cost of Carry :This includes:
- Interest rates (cost of borrowing to buy the asset)
- Storage costs (for physical goods like oil or wheat)
- Insurance and transaction costs
4. Expected Future Price or Sentiment:If the market expects prices to rise, futures may trade higher than spot and vice versa.
- What is Contango and Backwardation?
1. Core idea
Futures prices reflect today’s spot price plus (or minus) the “cost of carry” until delivery. That cost of carry bundles financing rates, storage, insurance, convenience yield, and any expected income from holding the asset.2. Contango (futures price?>?spot price)
- Futures trade at a premium because carrying the asset is costly or interest rates are high.
- The longer the time to expiry, the higher the quoted price tends to be.
- Typical in markets like oil or metals that are expensive to store.
3. Backwardation (futures price?<?spot price)
- Futures trade at a discount because holders earn a convenience yield (they need the physical asset now) or inventory is tight.
- Longer?dated contracts are usually cheaper than near?term ones.
- Often seen in perishable commodities or when there is short?term supply pressure.
- Futures trade at a premium because carrying the asset is costly or interest rates are high.
- How Do Commodity Futures Differ from Index or Stock Futures?
Feature
Commodity Futures Index/Stock Futures
Underlying Asset
Physical (e.g., oil, wheat, gold)
Non-physical (index level or stock price)
Settlement
Often allows physical delivery
Cash settled (you don't get shares delivered)
Expiry Cycles
Monthly, seasonal (based on harvest or demand)
Monthly or quarterly (set by exchange)
Influenced By
Weather, storage, geopolitics, seasonality
Earnings, economic data, interest rates
Participants
Farmers, producers, refiners
Retail traders, funds, institutions
Commodity futures may require knowledge of supply chains, while index/stock futures require financial analysis.
- What Are Some Common Futures Trading Strategies?
Here are widely used approaches:
Directional Trading:
-
Go long if bullish, short if bearish
-
Simple but risky — needs good timing & risk management
Hedging:
-
Use futures to protect portfolio or business exposure
-
E.g., short index futures to hedge long stock positions
Spread Trading:
-
Long one futures contract, short another
-
Example: Buy March crude oil, sell April crude oil (calendar spread)
Pair Trading:
-
Long one stock futures, short a related one
-
E.g., Long Reliance, Short ONGC based on valuation gap
Statistical Arbitrage:
-
Quant models using mean reversion, cointegration, and volatility spreads
-
- What Are Rollovers and How Are They Done?
Futures contracts have fixed expiration dates, typically monthly or quarterly. If a trader wishes to maintain a position beyond the current contract’s expiry, they must perform a rollover. This involves closing the existing position in the expiring contract and opening a new position in a later-dated contract, usually the next one in the series.
What is Rollover?
- Close the current month contract
- Open a new position in next month’s contract
Example:
You're long in Nifty July Futures.
- Before expiry, you sell July and simultaneously buy August Futures
- This is called a rollover
Roll Cost:
- If August contract is priced higher → rollover cost
- If it’s lower → rollover credit
Rollover activity is visible in:
- OI shifting from near-month to next-month contracts
- Calendar spreads traded by pros
- Close the current month contract
- What is the Purpose of Futures Trading?
Futures trading exists to serve two primary goals: hedging against price risk and speculating for profit. While the instrument is the same, the intent behind its use makes all the difference. Futures also play a key role in liquidity and price discovery in financial markets.
1. Hedging: Protecting Against Price Risk
Hedgers use futures to stabilize costs or revenues. These participants are often producers, consumers, or investors with exposure to real assets or portfolios. Their goal isn’t to profit from futures — it’s to reduce uncertainty.Example A: Crude Oil Producer (Seller Hedge)
A company extracting crude oil fears prices may fall in the next three months. To lock in current levels, it sells oil futures expiring in that timeframe.- If prices fall, futures make a profit — offsetting lower physical sale prices.
- If prices rise, the company earns more on oil but loses on futures. Either way, the outcome is more predictable.
Example B: Airline Company (Buyer Hedge)
Airlines spend heavily on jet fuel. If fuel prices spike, costs soar. To protect against this, the airline buys fuel futures at a fixed price.- If fuel becomes expensive, futures profit covers the extra cost.
- If fuel gets cheaper, the airline loses on futures but pays less in real-world purchases.
Financial Hedging
Institutional investors also hedge using index futures. For instance, an investor holding ?10 crore in stocks might short Nifty futures if they expect short-term market weakness. Gains in futures help offset losses in the portfolio.2. Speculation: Trading for Profit
Speculators have no interest in owning or using the underlying asset. They trade futures purely to profit from price moves — up or down — using leverage.Example A: Long Position on Gold
A trader believes gold prices will rise. Instead of buying physical gold, they buy gold futures using margin.- If gold rises, they profit from the futures contract.
- If gold falls, losses occur — and since leverage is involved, both gains and losses are magnified.
Example B: Shorting the Market
A trader expects the Nifty index to drop due to weak economic data. They short Nifty futures (sell now, buy later). If Nifty falls, they profit. Futures make shorting easier and more flexible than in the spot market.3. Hedgers and Speculators Depend on Each Other
Hedgers need counterparties to take the opposite side of their trades — and that’s where speculators step in. Without them, markets would lack liquidity.- A wheat farmer hedging by selling futures needs a speculator to take the opposite bet — that prices will rise.
- This interaction ensures trades are executed quickly and efficiently.
Speculators provide liquidity, while hedgers bring real-world economic activity. This synergy makes futures markets dynamic and continuous.
4. Price Discovery and the Role of Arbitrageurs
Futures trading contributes to price discovery — the process of finding a fair market price based on supply, demand, and expectations.
While speculators help set prices through active trading, arbitrageurs enhance this process by eliminating price gaps between markets:- They monitor for temporary mispricings between futures and spot markets
- They exploit these gaps, pushing prices back into alignment
- This keeps futures prices accurate and reflects true underlying value
- Together, arbitrage, speculation, and hedging drive a more efficient and transparent market.
In Summary
- Hedgers use futures to manage risk
- Speculators aim to profit from price moves
- Arbitrageurs refine prices across markets
- All three ensure futures markets are liquid, fair, and efficient
Futures trading isn’t just about making quick profits — it’s a critical part of how modern markets function, allowing producers, investors, and traders to manage risk and discover prices effectively.
- What Are the Essential Steps to Get Started with Futures Trading?
Futures trading lets you speculate on or hedge against price movements in markets like commodities, currencies, indices, and interest rates. But because futures are leveraged instruments, it's critical to approach them with preparation and discipline. Here’s a step-by-step roadmap for beginners:
1. Understand What You’re Trading
Before placing a single trade, learn the basics:- Futures are contracts to buy or sell an asset at a future date, not the asset itself.
- They are settled daily, and profits or losses are marked to market.
- You only pay a margin, not the full contract value — this increases both risk and reward.
- Contracts have fixed sizes, expiry dates, tick values, and may settle in cash or physical delivery.
Also, clarify your intent:- Hedging: Protect against price swings
- Speculation: Profit from expected price movements
2. Choose a Regulated Broker
Your broker connects you to the futures exchange, so choose wisely:- Must be licensed and regulated in your country
- Should offer access to global futures markets
- Clearly disclose fees, margin policies, and settlement rules
- Provide risk tools like stop-losses and real-time tracking
- (Bonus) Support demo trading or algorithmic trading via APIs
Avoid unregulated brokers offering excessive leverage or vague terms.
3. Open a Futures Trading Account
Futures trading often requires a separate activation step:- Submit identity and address documents
- Declare your income, experience, or financial status
- Sign disclosures acknowledging the risks of derivatives
- In some regions, you may need to meet minimum net-worth or experience criteria
Once approved, your broker enables access to futures or the derivatives segment.
4. Fund Your Account and Understand Margin
You don’t need the full contract value — just the initial margin, usually 5–20%.- Maintain a buffer above margin to handle daily price moves
- If your balance falls below the maintenance margin, your broker may issue a margin call
- Failure to respond could lead to forced liquidation of your positions
Margin allows leverage, but also means small moves = big impact. Always size positions wisely.
5. Learn the Risks of Leverage
With futures, leverage amplifies both profits and losses:- A 2% move in the market could translate to a 20% gain or loss on your margin
- If you don’t use stop-losses or risk limits, losses can exceed your initial capital
Key terms to understand:
- Initial Margin: Required to enter a trade
- Maintenance Margin: Minimum to keep it open
- Liquidation Level: Where the broker auto-closes your position
Risk control is not optional — it’s survival.
6. Practice With a Demo Account
Before trading real money, use your broker’s paper trading or demo mode to:- Place virtual trades in real-time
- Understand how margin and mark-to-market adjustments work
- Test strategies safely
- Get used to placing market, limit, and stop orders
Even if you're experienced in stocks or forex, futures mechanics are different — demo trading helps you adjust.
7. Pick One Market to Start
Start simple. Choose one or two liquid markets like:- Equity indices (e.g., Nifty, S&P 500, DAX)
- Commodities (e.g., crude oil, gold)
- Major currencies (e.g., EUR/USD)
Study:
- Contract size, tick value, and expiry
- Daily volatility and price ranges
- When the market is most active (aligned with your timezone)
Avoid jumping into illiquid or unfamiliar contracts — stick to well-traded markets until you're confident.
8. Start Live With Small Capital
Once you’re ready for real trading:- Start with the smallest contract size (micro or mini futures, if available)
- Use stop-losses and stick to daily loss limits
- Avoid overnight positions until you’ve built confidence
- Log every trade — record why you entered, how it went, and what you learned
The goal isn’t to make fast profits — it’s to build skill while protecting your capital.
- What Role Does Technical Analysis Play in Futures Trading Strategies?
Technical analysis is a core part of most futures trading strategies, especially for short- and medium-term traders. Since futures markets are liquid, fast-moving, and driven by price discovery, technical tools help traders identify entry and exit points, trends, and risk levels — all by studying price charts and volume instead of fundamental data.
Why Technical Analysis Works in Futures
Futures prices reflect all available information — news, sentiment, macro data — and that gets priced in almost instantly. This shows up directly on charts. Because traders tend to react similarly in repeated situations (fear at lows, greed at highs), patterns form, and technical levels gain importance. Even institutions and algorithms use technical zones like moving averages and support/resistance for execution, making them self-reinforcing.1. Chart Patterns: Visualizing Market Psychology
Chart patterns show how traders have behaved in the past and help anticipate future moves. Common patterns include:- Head and Shoulders, Double Tops/Bottoms – often signal reversals
- Triangles, Flags, Pennants – indicate continuation or breakout zones
- Breakouts with volume – point to strong momentum trades
Futures traders use these patterns to plan trades, especially when confirmed by volume and price action.
2. Technical Indicators: Measuring Trend and Momentum
Indicators use price and volume data to spot trends, reversals, or volatility shifts. Common ones include:- Moving Averages – define trend direction and support/resistance
- RSI and Stochastic – help identify overbought or oversold zones
- MACD – confirms trend strength and crossovers
- Bollinger Bands – show volatility compression and breakout potential
- ATR – used for setting dynamic stop-losses or sizing positions
No indicator should be used alone — the best traders combine them with chart structure and market context.
3. Volume and Open Interest: Confirming Conviction
Futures markets offer unique transparency in both volume and open interest (OI). Together, they help judge the strength of price moves.- High volume confirms the move is backed by strong participation
- Rising OI with rising price = new longs, usually bullish
- Rising OI with falling price = new shorts, often bearish
- Falling OI = traders exiting positions (profit booking or stop-outs)
For example, in crude oil futures, a price rise with increasing volume and OI usually signals strong bullish conviction.
4. Support, Resistance, and Key Price Levels
Support and resistance zones are where prices often pause, reverse, or accelerate. Traders use these to:- Set entries and exits
- Place stop-loss orders
- Avoid trading into known resistance or support
These levels can be previous day’s highs/lows, weekly pivots, trendlines, or round numbers like 10000 or 2000 — often respected due to institutional flows and option interest.
5. Time Frame Selection Is Critical
The choice of time frame depends on your trading style:- Intraday traders use 1 to 15-minute charts for precision
- Swing traders prefer 1-hour or 4-hour charts for spotting trends
- Positional traders rely on daily or weekly charts for macro views
Many successful traders use multiple time frames — for example, identifying the trend on a 1-hour chart and entering on a 5-minute pullback.
6. Technicals in Algorithmic Trading
Algo trading in futures often runs on technical logic:- Moving average crossovers
- RSI or momentum-based filters
- Breakout systems using price range or volume
- Volatility compression-expansion models
Because technical signals can be expressed in code, they are ideal for backtesting and automation — a big reason why they’re central to quantitative futures strategies.
- How Do You Develop a Robust Futures Trading Strategy from Scratch?
Building a futures strategy isn’t about chasing tips or patterns — it’s about following a clear, tested process. Futures are fast and leveraged, so your strategy needs discipline, data, and risk control.
1. Define Your Goal
Decide your intent:- Are you speculating, hedging, or arbitraging?
- Are you trading intraday, swing, or positionally?
This shapes your strategy and market choices.
2. Pick the Right Futures Market
Choose contracts that match your capital and goals.
Look for:- High liquidity
- Suitable volatility
- Reasonable contract size
Popular choices include crude oil, equity indices, and gold.
3. Understand Market Behavior
Study how your chosen futures contract moves.
Check:- Reaction to events (e.g., EIA, CPI)
- Volatility patterns by time of day
- Daily range (use ATR)
- Correlation with other markets
4. Define a Trade Setup
Create a rule-based setup. Examples:- Moving average crossover
- RSI-based mean reversion
- Volume breakout after news
Combine fundamentals for bias and technicals for timing.
5. Write Entry, Exit, and Stop Rules
Your rules must be clear:- Entry condition (e.g., breakout + RSI > 60)
- Stop-loss (e.g., 1.5× ATR)
- Exit logic (fixed target or trailing stop)
6. Risk Management Plan
- Risk max 1–2% per trade
- Use stop-losses
- Maintain a margin buffer
- Avoid emotional decisions or revenge trades
7. Backtest or Paper Trade
Test the strategy on past data or in demo mode. Track:- Win rate
- Drawdown
- Risk-reward
Use tools like Python or trading platforms.
8. Start Live – Small Size
Begin with the minimum contract. Focus on:- Discipline
- Trade logs
- Weekly review
Only scale once consistent and profitable.
9. Review and Improve
Markets change — so refine your strategy.- Study failed trades
- Adjust for new volatility
- Test tweaks in a sandbox before going live
Bottom Line:
Keep it simple, rule-based, and risk-aware.
Start small, test thoroughly, and refine with feedback. In futures trading, it’s not prediction that wins — it’s process and discipline. - What is Open Interest in Futures?
Open Interest (OI) is the total number of active futures contracts that have not been settled yet. These contracts are still "open" — meaning the positions haven’t been squared off, closed, or expired.
Think of it like this: every time a buyer and a seller agree on a new futures contract, one unit of open interest is created. That contract will remain in the count until either the buyer or seller exits (by squaring off or through expiry).
How Open Interest Is Created or Reduced
To understand how open interest works, imagine the following scenarios:- New Trade Between Two Fresh Participants:
Trader A buys 1 lot of Nifty Futures from Trader B, who is also entering a new position.
→ Open Interest increases by 1.- One Trader Exits an Existing Position:
If Trader C had an open position and now sells to someone who is closing their own long position,
→ Open Interest decreases by 1.- Transfer Between Existing Positions:
If one trader with an existing position transfers it to another trader who is also adjusting an existing position (without net new exposure),
→ Open Interest remains unchanged.At the expiry of the contract, all open interest resets to zero because all positions are either:
- Settled (cash-settled or physically delivered), or
- Rolled over to the next month (by creating equivalent opposite positions in the expiring and next contract).
- Open Interest vs Volume – What’s the Difference?
These two are often confused but serve different purposes:
- Open Interest shows the total number of open contracts at a point in time. Think of it as the stock of outstanding positions.
- Volume shows the number of contracts traded during a day. Think of it as the flow of trading activity.
A contract might be traded many times in a day (high volume), but unless new positions are created, open interest won’t change. Conversely, a low-volume day could still add to OI if new traders enter and hold.
- Open Interest shows the total number of open contracts at a point in time. Think of it as the stock of outstanding positions.
- Combining Price and Open Interest – Interpreting Market Sentiment
Traders often look at both price movement and OI changes together to understand what’s really going on:
- Price Up + OI Up:
New buying interest is coming in. This is generally bullish — fresh longs are being created.
- Price Up + OI Down:
Indicates short covering. Traders who were betting on a fall are closing their positions. The rally might not be sustainable.
- Price Down + OI Up:
New shorts are entering the market. This is bearish — fresh selling pressure is building up.
- Price Down + OI Down:
Suggests long unwinding. Traders who were bullish are exiting. This can point to a weak downtrend.
- Price Up + OI Up: