If you’re a trader in the UK, there’s a good chance that you’re using futures as your go-to trading instrument. But why are futures so popular among British traders? In this article, you will see it here, the reason why futures are such an attractive option for UK traders.
Futures contracts are a sort of derivative contract
It means that they derive their value from an underlying asset. The most common type of futures contract is based on a commodity, such as oil or gold. However, futures contracts are also available for other assets, including stocks and currencies.
When you trade a futures contract, you’re effectively betting on the future price of the underlying asset. Assuming the gold price will rise, you will buy a gold futures contract. Conversely, if you think the price of gold will go down, you would sell a gold futures contract.
The benefits of futures trading
The great thing about futures contracts is that they offer high leverage. It means you can control a large amount of the underlying asset for a relatively small amount of capital. For example, with a leverage ratio of 20:1, you could control $20 worth of the underlying asset for every $1 in your account.
This high degree of leverage can magnify both your profits and your losses. So it’s vital to use stop-loss orders to limit your downside risk.
Another critical advantage of futures contracts is that they’re highly liquid. It means that it’s easy to buy and sell contracts at the market price. There’s also a large number of participants in the futures markets, which helps to ensure that prices are efficient.
Futures contracts have been traded in the UK for centuries
In 1851, the first futures contract was traded to kick off the UK’s Great Exhibition. The largest futures exchange in the United Kingdom is the London International Financial Futures and Options Exchange (LIFFE). It offers trading in various asset classes, including commodities, currencies, interest rates, and equity indexes.
How to trade futures in the UK
If you’re interested in trading futures in the UK, you’ll need to open an account with a broker that offers access to the LIFFE. You’ll also need to have enough capital in your account to meet the margin requirements for the contracts you want to trade.
Margin requirements can vary depending on the broker, but they’re usually around 10-15% of the value of the contract. So if you wanted to trade a gold futures contract with a value of $100,000, you would need to have at least $10,000 in your account.
When you’re ready to place a trade, you’ll need to choose a direction (buy or sell) and an expiry date. You’ll also need to set a stop-loss order to limit your downside risk.
If you’re correct about the market’s direction, you’ll make a profit when the contract expires. If you’re wrong about the direction of the market, you’ll make a loss.
The popularity of futures trading is growing in the UK
Futures trading is becoming increasingly popular in the UK, with the number of contracts traded on the LIFFE growing yearly. There are many reasons for this:
- Futures contracts offer high leverage, which can magnify your profits (and losses).
- They’re highly liquid, which makes it easy to buy and sell contracts at the market price.
- They can use to hedge against risk.
Futures contracts are a popular derivative instrument offering high leverage and liquidity. You can use it to trade a wide range of assets, including commodities, currencies, interest rates, and equity indexes. You can also use futures contracts to hedge against risk. If you’re interested in trading futures in the UK, you’ll need to open an account with a broker that offers access to the LIFFE. You’ll also need to have enough capital in your account to meet the margin requirements for the contracts you want to trade.