If you're wondering how to buy futures and options or confused about what they are, you're not alone. To many, they seem daunting if not downright scary.
Luckily, Bullish Bears is here to demystify the world of options and futures trading; it's not as complicated as you may think! Buckle up, and let's get started!
What's the Difference Between Futures and Options?
- Did you know that futures and options are not the same things? So what are futures in the stock market? A futures contract requires a buyer to buy and a seller to sell a specific underlying at a future date and price. Here, the underlying asset is the security/asset that the option contract allows you to buy or sell.
Futures contracts can be on physical commodities like oil, corn or soybeans. Alternatively, they can be on financial instruments like the S&P. By contrast, an options contract gives you the right, but not the obligation, to buy (or sell) shares at a specific price at any time.
What's fantastic about options is that you give you the ability to trade expensive stocks like Apple, Facebook and Tesla for a fraction of the cost. Furthermore, with options, your risk is limited.
1. How to Buy Futures and Options
To make life easy for you, I broke down the steps required if you want to buy futures and options.
- Choose a broker. We've written numerous reviews on the different charting platforms on the market. Please take the time to decide which one is for you. Luckily we've written extensively on them; click here for a link to our blog to find out more.
- Choose a charting platform. Most brokers provide charting software, but the quality can be hit or miss. Once again, we've covered the different platforms in detail in our blog.
- Pick a quality education provider like Bullish Bears to learn the in's and outs of futures and options trading.
- Pick your trading strategy. First, keep it simple! Pick one strategy and go with it, see if works. Complicated systems lead to stressful, emotional trading, which is gambling.
If you're wondering how to buy futures and options, you can't buy them without a broker. Whichever financial instrument you purchase, you'll want a broker that has a reputation for fast and accurate order execution, low commissions costs, and cutting-edge tools.
You need to choose the best broker for your needs lest you end up with ridiculous fees and terrible fills.
Let's take a look at this a little closer.
2. Infinity Futures
Headquartered in Chicago, Infinity Futures, LLC is an Independent Introducing Brokerage firm. For the past 25 years, Infinity has been providing traders access to markets worldwide.
As an Independent Introducing Brokerage firm, they don't personally execute your order requests. In fact, they send your order requests to another firm for execution.
The reason they do this is because they'd instead focus their energies on their clients. Which means you can pick up the phone and get direct access to support.
Every account holder at Infinity is assigned a personal Customer Service Representative who also has CFTC and NFA credentials.
At this point, you're probably wondering which firm is handling your order requests. Look no further than futures commissions merchant (FCM) TransAct Futures. Beyond even that, Infinity Futures is a wholly-owned subsidiary of TransAct Futures.
TransAct Futures provides the trading software, facilitates trade execution with the exchange and holds customer money in customer segregated accounts.
All of this means that Infinity Futures is your broker, and TransAct Futures is the futures commissions merchant (FCM).
3. Why I Like Infinity Futures
- Extremely low intraday margin requirements to open and hold positions
- Fully integrated AT trading platform
- Simple and easy to open an account
- The cost structure for placing trades is definitely on the low end of the spectrum. Give them a call and work your magic; you might be able to talk yourself down to $5 / RT per contract.
- Data fees only cost $15/month for the basic package.
- There's practically no delay in data, which means no lag in the tick-to-tick price changes.
- Order fills within milliseconds.
How Do I Invest in Futures and Options?
- Do you want to know how to buy futures and options? First you need a broker that can do either or both; depending on if you to trade one or both. You may see that you need margin. If you have to use a margin account, make sure you're really good at trading both strategies.
1. Tastyworks Is the Best Broker for Options Trading
If you're learning how to buy futures and options but need a broker, we got you. If you don't read any further, this is all you need to know: Tastyworks is the best broker for options trading.
Despite only opening in 2017, Tastyworks have established itself as a leader in the options trading world. With order execution times akin to the speed of light and commissions capped at $10 per leg, you'd be hard pressed to find a better deal elsewhere.
But, there's more to Tastyworks than lightning-fast order execution and cheap commissions. Unlike other brokerage firms that offer standard trading platforms and software, Tastyworks have geared their platform towards the options trader.
In fact, their entire platform's geared towards evaluating volatility and the probability of profit, both crucial factors in options trading.
And it gets even better; you can analyze multiple outcomes on your open positions. Within the analysis page, you can analyze the risk profiles of combined positions and see how a possible adjusting position will change that trade outlook.
Perhaps you have an open position on Apple and want to know the outcome of an iron condor or even a butterfly spread. All of this is possible with Tastyworks.
2. Why I Like Tastyworks
- Their analysis page tells you how much you stand to gain or lose if you adjust your open position
- ChartGrid allows traders to load up to 10 different underlying's on a single page.
- Consistent look and feel throughout their desktop and mobile platforms
- No account minimums
- Their initial commissions are practically non-existent
- No commissions on closing trades
3. One Option Trading Strategy for Beginners
One common option trading strategy is the butterfly options spread. With limited downside risk, a butterfly option spread is a risk-neutral options strategy.
For starters, it combines bull and bear call spreads to earn a profit when the underlying stock price doesn't move much. Despite the fact that your profit is somewhat limited, so is your risk.
So if you're anything like me, this strategy is attractive. Furthermore, it is one of the few options strategies that work well in a small account.
Another benefit of trading this options strategy is that the position will typically make money on the downside due to skew. I won't go into too much detail here, but the skew is used to describe the implied volatility of options at different strikes.
Which Is Best Futures or Options?
- When learning how to buy Futures and options you may wonder if one is better than the other. In my opinion, no. One is not better than the other. Instead, it all depends on your trading style. There are some that swear by Futures trading. And some that swear by options trading. In fact, there are even those who trade both. They're each different but both incredible ways to make money.
1. One Future's Trading Strategy for Beginners
I follow the K.I.S.S. mantra; why complicate things if you don't have to. The strategies to trade futures are the same you'd use to trade stocks.
For starters, you need to decide if you're going to day trade or swing trade and go from there.
Personally, I trade the three wedge push reversals on the MES. It's simple, easy to spot, and the pattern repeats itself every single day.
Rose is a master of this trading strategy, and you can find an in-depth explanation of it in our futures room.
People think there's some great mystery to success in futures and options trading. Some avoid it altogether because they believe it's too confusing or too risky.
But understanding options and futures is easier than you think. And once you get the hang of it, the risks can be easily minimized.If done right, options trading can be simple and—more importantly—lucrative.
If you think futures and options trading is in your future, make sure to check out our online trading courses. We teach you how to buy futures and options there.