How much money do you need to trade futures?
This depends on your broker and the futures you want to trade.
Some brokers have a minimum amount of money that must be in an account before futures trading can take place. Others don't have a set minimum.
There's also margin minimums to consider, which have to do with the specific futures contracts you want to trade. This is a different concept than using margin to trade stocks, and is the minimum amount of money you'll need in your account in order to trade a specific type of futures contract. This can vary based on a few factors, including the volatility of that particular type of futures.
While you may be able to open a futures trading account with a relatively small amount of money, in reality you may need significantly more in your account to start trading the types of futures you're interested in.
Risks of futures trading
The risks of futures trading are quite complicated and could be the topic of their own long-form article. But there are a couple of big risks that are important to keep in mind before you open an account.
First, futures trading generally uses a lot of leverage. When trading stocks on margin, you can typically get two-to-one leverage, meaning that you can buy $10,000 in stock with a $5,000 account balance. When it comes to futures, there can be significantly higher leverage -- as much as 20 to one. This can be both a positive factor (higher profits) as well as a big negative factor. Because of this, if your futures trade starts going in the wrong direction, you may be required to deposit more money to cover the maintenance margin requirements and could ultimately result in big losses.
Second, while it might seem obvious, futures contracts are speculative investments that are based on the future price of something. And there's a lot that can happen between now and then. There was a famous situation in the early days of the COVID-19 pandemic where oil demand crashed when everyone went into lockdown, and oil futures were actually trading for negative values because there was simply nowhere to put all of the oil they represented.
These aren't the only risks of futures trading. It's important to study the risks and benefits of futures before you attempt to trade them.
Is futures trading right for you?
It depends. Like any other kind of trading, futures are appropriate for investors who really know what they're doing. Futures trading can be risky. For one thing, futures investors often use a significant amount of margin (leverage) when trading. Think of margin as borrowing a portion of an investment's value -- similar to getting a mortgage to pay for what your down payment doesn't cover on a house. Any time there's a large component of leverage, there's going to be the potential for amplified losses if things go the wrong way.
It's important for beginners to learn as much as possible before getting started. If you're thinking of starting to trade futures, it could be a smart idea to choose a broker with tons of educational resources. Also look for a "play money" platform so you can try futures trading without risking your actual money until you're 100% sure you're ready.
Fact Checked
Ashley Maready
2024 Award Winner
