Breaking Down Futures Trading: Advanced Concepts for Pro Traders

Once a relatively obscure investment, futures trading has become popular among pro traders. Futures are contracts that allow investors to buy or sell an underlying asset sometime in the future for a predetermined price. Traders can use it to hedge against market volatility, set prices for goods and services, or even speculate on potential price movements for various assets.

While beginners may only understand the basics of futures trading, advanced concepts are just as crucial for pro traders who want to maximise their profits. This article will discuss advanced concepts of futures trading, which can help experienced traders make educated decisions when speculating on markets.

Hedging strategies

Futures traders can use hedging strategies to protect themselves from potential losses due to market volatility. By taking a long or short futures position in the same asset class, futures traders can balance their positions and reduce risk. One example is using futures contracts to hedge against price movements in shares or commodities you own. This way, if the prices of your assets decrease, the gains made on futures contracts will offset any losses you may have incurred. In addition, futures traders can also use futures to hedge against foreign exchange risks when trading international markets. By buying futures contracts with a currency they are exposed to, they can gain some protection from significant shifts in exchange rates.

Spread trading

Spread trading is another advanced concept in futures trading which can help pro traders maximise their returns. Spread trading involves taking simultaneous long and short positions in futures contracts of different months or expiries. This way, by betting on the price difference between these futures contracts, futures traders can benefit from arbitrage opportunities in the market. For example, a futures contract for December delivery is priced higher than one for March delivery. In that case, futures traders can buy the December contract and sell the March contract simultaneously to take advantage of this discrepancy.


Futures trading also allows investors to use leverage when speculating on markets. Using leverage, futures traders can increase their exposure to the futures market without risking any additional capital. It can be done by borrowing money from a futures broker in the UK or using margin accounts to access more significant futures positions with less upfront capital. Leverage can also be used to magnify potential gains, but it comes with an increased risk of significant losses if markets move against traders’ positions. Moreover, futures contracts also have expiration dates which can result in futures traders having to close out their positions before they are ready.

Options trading

Options trading is a more advanced derivative of futures trading that pro traders can use to speculate on the price movements of underlying markets. While futures contracts only allow traders to buy and sell futures at predetermined prices, options offer investors the right but not the obligation to buy or sell futures. This additional flexibility allows futures traders to tailor their strategies to their risk appetite and capital requirements. For example, some futures traders may use options as a cost-effective way to gain exposure to specific markets while limiting their risk.

Technical analysis

Futures traders may also use technical analysis when deciding about entering and exiting positions in the futures market. Technical analysis involves using chart patterns and indicators to identify opportunities in futures markets. By looking at historical prices, volume data, and other technical indicators, futures traders can gain insights into potential price movements and decide when to enter and exit positions. Future traders may also use technical analysis to set stop-loss orders, which can help limit potential losses in a market downturn.

Risk management

Risk management is essential for futures traders to consider when trading futures. Futures markets are highly volatile and can move quickly, so futures traders should always employ a sound risk management strategy when trading futures. It includes using stop-loss orders, diversifying portfolios, and employing hedging strategies like spread trading. By doing this, futures traders can limit their exposure to risk while also taking advantage of potential opportunities in the futures market.