Chapter 9: How to Trade Futures?

Let’s dive into the trading journey and focus on how are futures traded. Plus, we’ll also answer the question of whether futures trading is profitable for speculators!

Steps to Start Futures Trading 

This simple 5-step process will help you initiate the necessary set-up required to trade futures in India. 

1. Choosing a Futures Trading Platform 

Choosing the right broker for trading is the key to having a great trading experience. Brokers provide a trading platform on which you can execute trades entirely online. A few things to keep in mind before you choose a broker is:

Browsing the Futures Trading Platform: A good platform can ease your trading journey as the execution of trades becomes faster and easier. 

Check Customer Service: Great customer service is another very important characteristic while choosing the right broker/platform. 

Awesome Features: A platform should have amazing features like creating multiple watchlists, snapshots of future contracts, various charting tools for technical analysis, easy payments and withdrawal systems.

2. Complete Your KYC

Once we choose a broker/trading platform its time to open a trading account. Nowadays opening a trading account is as simple as opening a bank account. All you need to is go through a simple Know Your Client process (KYC). 

KYC processes involve submitting personal details like name, age, address proof (Aadhar Card, Passport, etc), contact details, bank details, and income proof. Once submitted and verified your account is ready for trading.

3. Submit Proof of Income

As a part of the KYC process , its necessary to submit proof of income. The latest bank statement of the last 6 months has to be submitted as proof of income , to open a futures trading account. 

4. Deposit Margin

Once our trading account is active, you’ll have to  deposit margin money. By now, you know that exchanges ask for upfront margin as collateral which is a standard practice to trade in futures. 

This margin has to be deposited with the broker who will then credit your trading account with a position limit to your trading account. The broker is responsible to deposit the margin money to the exchange on behalf of the trader and maintain a margin account with the exchange. 

5. Start Trading Futures 

After depositing margins, you are ready to start trading in futures. Futures trading is a zerosome trade and so a trader needs to understand the risks involved and then focus on trading. 

Not to forget, hard earned money is at stake and its important to trade with caution, understand the risks involved and backtest your strategies to create a system that works for you as a trader.  

Before we go ahead, remember there is no guaranteed process which can assure success in futures trading. There are a lot of futures traders out there who trade daily – they all may have different strategies and ways of execution. 

One important note, there should be special focus on the process of trading since it will be more or less the same for generations to come. However, traders may choose their preferences on which futures they want to trade and where they want to trade. 

The Futures Trading Process

Most skilled traders would agree that they follow a set process when it comes to trading any type of futures such as stock futures, currency futures, or commodity futures. 

It is the trading system which they develop over time with their experience and follow a set designed pattern for any trading activity which starts with the following. 

Lets have a look at a process that a trader can follow before a trader enters in the futures market. 

Process of Trading Futures

  • Developing a view
  • Setting up a trading plan
  • Choosing the right instrument for trading
  • Selecting the right futures trading platform and tools
  • Building the right strategy
  • Managing risk
  • Exiting or closing a position
In the coming chapters, we shall decode the above mentioned process, and discuss a few strategies for futures trading and how they work in different market conditions.