How do I Trade Stock Futures?

Stock futures set the sell date and price of a stock trade in advance.

Stock futures set the sell date and price of a stock trade in advance.

Stock futures are contracts that state that you will buy or sell shares of a stock at a certain price on a specific date. Because the sale price is negotiated in advance, market fluctuations between the time the contract is created and the date of sale don't have the impact they would for openly-traded stock. Stock futures trading is similar to options trading, though when the futures expire you are contractually bound to complete the purchase or sale of the stock named in the futures contract.

Contact the brokerage of your choice and open a margin account, making an initial deposit equal to or greater than the brokerage's minimum account balance. If you don't have a broker, contact the brokerage and investment firms in your area to find one that's right for you. Ask how much their transaction fees are, what the minimum amount you need to open a margin account is, and whether they offer other investment or money management services for future reference.

Research your stock options, choosing one or more stocks you are interested futures trades for. If you plan on using futures for stock purchases you should look for stocks that are likely to continue performing well. If you plan on using futures to sell stocks you currently own, evaluate their performance and choose stocks that are doing well now but which may drop in price down the road to be worth less than you paid for them.

Place a futures order. If you are buying stocks your order will be for a "call" contract; if you're selling you'll place an order for a "put" contract. Standard futures contracts are for the purchase or sale of 100 shares of stock, and you will need to pay a margin fee of 20 percent of the going rate per share included in your contract.

Monitor the performance of the stock you've purchased a futures contract for. Though the cost-per-share specified in your contract won't be affected by the changes in the market price of the stock, keeping watch on the stock's performance lets you determine whether you stand to make or lose money if you buy or sell at the rate specified in your contract.

Tell your broker if you wish to close out your futures contract before its expiration date. Relatively few futures orders actually reach their date of expiration, instead being canceled by a second futures contract that takes the opposite action of the original. The new contract is created to expire on the same day as the original, buying or selling the stock at the same time as the original contract sells or buys.

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