Closing a futures trade

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On the contrary, you can usually close a futures trading position at will. This works the same as with any other financial instrument - as long as there must be a buyer willing to buy the futures contract from you. This should not be a problem when trading highly liquid asset classes such as oil, gold or currencies, as there are trillions of dollars worth of liquidity on the futures trading floor every day.

In terms of pricing, the value of your futures trade depends on current market conditions.

For example:

  •     Let's say you have a natural gas futures contract with an expiry date of 3 months no more.
  •     The contract price was 2 USD per MMBtu
  •     Two months after the contract expires, the price of natural gas is 1.50 USD.
  •     You decide to lock in your profit at 0.50 USD per contract, which is a 25% profit.

As described above, you were in the money on your futures trade with one month to go. Sure, you could have held the position open until the contracts expired - and possibly made more. Instead, you decided to lock in your profits and earn a guaranteed return of 25%.

Futures trading markets

When it comes to the markets where you can buy and sell futures contracts, the possibilities are endless. In other words, if a marketplace exists, it is almost certain that a futures contract can be bought. However - and as we discuss in more detail below - the traditional futures scene is reserved for big buyers, so you'll probably have to trade CFDs instead.

Nevertheless, below are some of the most common futures trading markets.

  •     Indices: This includes all the major stock market indices and some minor ones. Think along the lines of the S & P 500, the Dow Jones, the FTSE 100 and the Nikkei 225.
  •     Stocks: It is also possible to trade futures contracts on traditional stocks such as Apple, Facebook and Disney.
  •     Hard metals: Commodities such as gold, silver and copper are very popular in futures trading. This allows investors to gain exposure to assets that would otherwise be difficult to access.
  •     Energies: This includes the main markets for crude oil and natural gas.
  •     Agricultural products: You can also buy and sell futures contracts for agricultural products such as wheat, corn and sugar. This particular segment is popular with farmers who want to hedge against future price movements of the asset they are involved in.

Do I have to take physical delivery?

One of the most common questions newbie futures traders ask is about physical delivery. For example, if you buy 1,000 contracts in crude oil and let the contract expire, do you have to take physical delivery of the actual barrels? Well, that all depends on how the futures contract is settled.

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Cash settlement

In most cases, the forward contract is settled in cash. Let's say you have 1,000 long contracts in gold. This means that you essentially agree to buy gold at a later date. However, if you were to let the gold futures expire, you would have to pay off the futures in cash.

here is explanation from infoexness: "ขึ้นอยู่กับราคาการนัดหยุดงานของสัญญามากกว่าราคาตลาดปัจจุบัน. ประเด็นสําคัญที่นี่คือฉากการซื้อขายถูกครอบงําโดยนักลงทุนเก็งกําไรใน exness เทรด อะไร ได้ บ้าง ที่ไม่มีความสนใจในการส่งมอบสินทรัพย์ทางกายภาพ. ในทางตรงกันข้ามพวกเขาต้องการทํากําไรจากความแตกต่างระหว่างราคาสัญญาและราคาการชําระ."

"This is based on the strike price of the futures contract rather than the current market price. The key point here is that the futures trading scene is dominated by speculative investors who have no interest in physical delivery of the asset. On the contrary, they only want to profit from the difference between the contract price and the settlement price."

Physical settlement

Against this background, some futures contracts are settled in the underlying asset as opposed to cash. This was evident in April 2020 when the price of WTI oil futures went Negative.

The reason is that there was simply too much oil in circulation. According to the coronavirus pandemic, there was virtually no demand for oil, meaning that those holding the physically settled futures contracts had nowhere to store them when they settled.

As a result, traders desperately hoped to offload their oil contracts to avoid the obligation of physical delivery. This in turn pushed the futures price into negative territory. In layman's terms, this means that you would be paid to take over the barrels, which is nothing less than unprecedented!