The cost of buying/selling futures | Reviews of Brokers and Data Feeds


futures.io - futures trading strategies, market news, trading charts and platforms


Reviews of Brokers and Data Feeds


Review and discuss futures brokers, their requirements and features, or ask questions about brokers and data feeds




 

The cost of buying/selling futures

  #5 (permalink)

Legendary Market Wizard
Houston, TX
 
Trading Experience: Advanced
Platform: XTrader
Broker/Data: Advantage Futures
Favorite Futures: Energy
 
Posts: 3,040 since Dec 2013
Thanks: 2,471 given, 5,456 received


trading654 View Post
From what I see so far, it doesn't cost anything to buy/sell futures or, more accurately, enter into a long/short position into a futures contract. It costs zero. All you have to show your broker is that margin. But it's not like you're spending say X dollars to buy Apple stock.

My question is, is it always the case with entering into futures that you pay zero up front? Or are there futures markets out there where I do not have this luxury of paying zero? So for example, instead of showing the broker $2,000 margin and pay zero, are there futures markets anywhere where I have to pay something like $500 (or whatever the market price is) and show the broker a $1,500 margin, or something of that sort?

When you buy a stock you are buying ownership in the company. The person who sold you that ownership wants/needs to be paid for transferring their ownership rights to you.

A futures contract on the other hand is a derivative, meaning it's price is derived from something else. So when you buy a contract of say CME's S&P 500 eMini (ES), your not actually buying stocks, your buying a financial derivative whose price will fluctuate based upon what the S&P 500 index does. Future's exchanges, to protect themselves and their customers, require that everybody buying or selling futures contracts post an "initial" margin with the exchange. Note that as the position moves against you (in your favor) the exchange will require to post additional (less) 'maintenance' margin to support the position. Margins are not surprisingly contact specific. The bigger the contract size & the greater the volatility the higher the margin requirement.

Note: That in many cases you can take delivery of a futures contract (this is not possible with the CME S&P 500 eMini) in which case you will have to post the full value of the underlying contract to the exchange. This is very very rarely done though, and never by a retail trader.

As @tturner86 states there are commissions associated with trading futures. The exchange has an exchange fee, the broker charges an execution/clearing fee and the NFA charges a regulatory fee. Often this is all bundled in to one brokerage commssion fee. This tends to be tiny though when compared to the notional value of the contract traded though.

As @choke35 states 'margin' is a very dangerous concept and as he recommends I would suggest you do a lot more research before diving in at the deep end.

Reply With Quote
The following 6 users say Thank You to SMCJB for this post: