If you’re looking to trade assets like oil, gold, or even stocks in a more sophisticated manner – you might want to consider futures. In doing so, not only can you speculate on the future value of an asset without taking ownership upfront, but you can attempt to profit from both rising and falling markets.
This marketplace is, however, complex – so if you’re looking to learn the ins and out of how to invest in futures in the UK – you’ve landed on the right place. We’ll take you through the specifics of how futures work, where you can trade them, and which strategies to consider before getting started.
#1 Broker to Invest in Futures UK – eToro
How To Invest in Futures UK – Choose a Broker
Futures are complex in nature, so access to this marketplace as a retail investor can be challenging. Nevertheless, below you will find an overview of the best online brokers that allow you to invest in futures in the UK.
- eToro – Overall Best Place to Invest in Futures UK
- Capital.com – Trade Futures at 0% Commission
- AvaTrade – Credible Broker to Trade Futures With Leverage
We list the benefits and drawbacks of the above investment platforms further down in this guide.
How to Invest in Futures UK – A Quick Guide For 2021
If you’re ready to invest in futures in the UK right now – but need a little guidance, the quickfire guide below provides an overview of the required process. For this mini-tutorial, we explain the required steps with eToro – an FCA-regulated broker that allows you to trade futures on a spread-only basis.
- Step 1: Open an Account with eToro – Before you can invest in futures at eToro, you will need to open an account. Simply provide some personal information, contact details, and a username/password and you’re good to go.
- Step 2: Upload Your ID – If you are investing more than $2,250 (about £1,600) at this stage – you will need to upload a copy of your passport or driver’s license. If not, you can come back to this step at a later date.
- Step 3: Deposit Funds – You need to deposit at least $50 (about £35) to invest in futures at eToro. Enter your desired deposit amount and select a supported payment method – which includes debit/credit cards, e-wallets, and a bank transfer.
- Step 4: Search for Futures Market – Search for the futures market that you wish to trade. You can do this via the search bar if you know the specific asset, or hit ‘Discover’ to see which futures markets eToro offers.
- Step 5: Place Futures Trade – You now need to set up your futures trade. First, specify whether you think the price of the futures contract will rise or fall, through a buy or sell order respectively. Next, enter the amount you wish to risk on the position, before clicking on ‘Open Trade’.
Your futures investment at eToro is now live. In terms of cashing out, you can either wait until the futures contract expires or close the position manually.
67% of retail investor accounts lose money when trading CFDs with this provider.
Where to Invest in Futures UK – Full Broker Reviews
It is important that you choose a suitable broker when learning how to invest in futures in the UK. There are a number of core factors to consider in this respect, such as what futures markets the broker offers, alongside the fees and commissions that will come into play. You do, of course, also need to ensure that the futures broker is regulated.
In the sections below, we offer reviews of the best trading platforms in the UK that allow you to invest in futures.
1. eToro – Overall Best Place to Invest in Futures UK
eToro is the overall best place to invest in futures in the UK – both in terms of safety and cost-effectiveness. Regarding the former, this top-rated brokerage firm is regulated by the FCA, and your capital is covered by the FSCS. Regulation also comes from a number of non-UK financial bodies, such as the SEC and ASIC in the US and Australia respectively. In terms of fees, eToro allows you to trade futures on a spread-only basis, which means that the broker doesn’t collect commissions.
Supported markets at eToro run into the thousands. Futures, for example, can be traded against a vast number of commodities, such as crude oil nickel, and aluminium. You can also choose from a list of contract expiry dates to suit your preferred trading strategy. Once you have decided which futures market takes your interest, eToro will ask you to enter with a buy or sell order – which is dependent on whether you think the respective asset will rise or fall in value.
Then, you will also be given the option of applying leverage to your trade. This stands at up to 1:10 at eToro, meaning that a £500 trade can be magnified to £5,000. Once your position goes live, you can elect to sell your futures contracts at any given time before they expire. This is because the futures offered by eToro come in the shape of CFDs. Put simply, the CFD instrument will mirror the real-world price of the futures contract on a second-by-second basis.
A major benefit of trading futures CFDs is that you will never be in a position whereby you need to take ownership and delivery of the asset. At eToro, you can get started with an account in under five minutes by providing some personal information and making a deposit of at least $50. You can do this with a debit/credit card, e-wallet, or traditional bank transfer. If you’re looking to create a diversified portfolio of assets, eToro also offers thousands of 0% commission stocks and ETFs.
This covers markets in the UK as well as 16 international exchanges. You can also trade cryptocurrencies like Bitcoin, precious metals, energies, indices, forex, and more. The Copy Trading tool is also popular with UK investors, as this allows you to buy and sell financial instruments passively. You simply need to choose a successful eToro trader and specify an investment amount, and then all future positions will be mirrored in your own portfolio. Finally, eToro also offers an investment app for both iOS and Android – which connects to your main account.
- Invest in stocks at 0% commission and ZERO stamp duty
- Minimum investment per stock investment is $50
- Supports debit/credit cards, e-wallets, and UK bank transfers
- Regulated by the FCA and covered by the FSCS
- Used by over 20 million people
- Perfect for beginners
- Social and copy trading tools
- Perhaps too basic for technical traders
- No support for MT4 or MT5
67% of retail investor accounts lose money when trading CFDs with this provider.
2. Capital.com – Trade Futures at 0% Commission
Capital.com is a leading CFD and spread betting broker that lists thousands of financial markets. This is inclusive of stocks and ETFs, forex, indices, index funds, and futures. In particular, this top-rated platform offers a good range of futures markets that can be traded against crude oil. Not only does this include spot prices for both the Brent (UK) and WTI (US) oil marketplace, but various contract expiry dates. As such, Capital.com offers all of the required tools that you need to trade futures in a flexible manner.
Another interesting futures market offered by Capital.com is linked to carbon emission levels. This and all other markets on the Capital.com platform can be traded at 0% commission alongside competitive spreads. This is the case irrespective of whether your chosen market is listed in the UK or abroad. If you are just starting out in the world of futures trading, you will be pleased to know that Capital.com requires a minimum deposit of just £20. This is on the proviso that you fund your account with a debit/credit card or e-wallet.
Otherwise, if opting for a bank transfer, a minimum deposit of £250 is required. Nevertheless, once you are ready to enter a future position, you will have access to leverage. Limits will depend on the specific market and if you are a retail or professional client. You can also choose to enter your futures trade with a buy or sell order, meaning that you can look to profit from rising and falling prices. When it comes to regulation, Capital.com is licensed by the FCA, CySEC, ASIC, and NBRB. Your money is also covered by the FSCS – up to the first £85,000.
- Top-rated spread betting and CFD broker
- Licensed by the FCA, ASIC, CySEC,and NBRB
- £20 minimum deposit (debit/credit cards and e-wallets)
- 0% commission on all markets
- Tight spreads and no fee on deposits or withdrawals
- Supports thousands of financial markets
- Convenient for newbies
- Experienced traders might consider the broker too basic
- £250 minimum deposit on bank transfers
Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.77% of retail investor accounts lose money when trading spread bets and/or CFDs with this provider.
3. AvaTrade – Invest in Futures via Leveraged CFDs
AvaTrade is a popular online trading platform that specializes in financial derivatives. This includes a huge selection of CFD and spread betting markets from a wide variety of asset classes. For instance, you can trade forex, commodities, stocks, ETFs, bonds, and more. In terms of its supported futures markets, this is inclusive of crude oil, gold, silver, and more. All supported futures instruments can be traded with leverage – and both long and short positions are possible.
Either way, AvaTrade is another futures trading site that offers 0% commissions on all markets. Plus, we found that the spreads on offer are some of the tightest available in this industry. AvaTrade is potentially more suitable for those of you that have some experience in the futures trading scene, not least because the platform comes packed with advanced features. For instance, the native AvaTrade trading platform offers dozens of technical indicators and chart drawing tools.
Alternatively, you might even consider linking your AvaTrade account to MT4 or MT5 – both of which are popular with seasoned traders. When it comes to safety, AvaTrade is regulated by seven financial bodies from around the world. The platform has also been offering online trading services since 2006, so it has a long-standing track record in this space. You can open an AvaTrade account in a matter of minutes and the minimum deposit stands at just £100.
- Regulated in seven jurisdictions
- 0% commission on all supported markets
- Offers spread betting and CFD instruments
- Minimum deposit of just £100
- Free demo account
- Supports MT4 and MT5
- Spread betting department limited to just 200+ financial markets
- No support for instant bank transfers
Trading CFDs and FX Options entail risk and could result in the loss of your capital.
How to Invest in Futures UK – Detailed & Explained in Full
Now that we have reviewed the very best futures trading platforms operating in this arena, we can now walk you through the investment process step-by-step.
For the purpose of this tutorial, we show you how to create a brokerage account with eToro, deposit some funds, and finally – set up your first futures investment.
Step 1: Open a Broker Account
To create an account at eToro, you simply need to visit the broker’s homepage, click on ‘Join Now’, and follow the on-screen instructions. This will require some personal information from you – such as your name, address, and mobile number. You also need to choose a username password, and verify your email address.
eToro – which is authorized and regulated by the FCA, needs to ensure that it complies with anti-money laundering laws. This is why you will now be asked to provide a couple of identification documents. This includes a copy of your government-issued ID and a proof of address that has been issued within the prior three months.
Note: As we briefly mentioned earlier, you can skip this step to a later date if you don’t have the required documents at hand. This is, however, only possible if you are looking to deposit less than $2,250.
67% of retail investor accounts lose money when trading CFDs with this provider.
Step 2: Deposit Investment Funds
To deposit funds into your eToro account, you first need to choose your preferred payment method from the drop-down box. This includes debit/credit cards, Paypal, Skrill, Neteller, and more.
The minimum amount that you can deposit as a new customer is just $50. Unless opting for a bank transfer, eToro will process your deposit instantly.
Step 3: Choose Futures Investment Market
With a funded eToro account, you can now search for your chosen futures market. The best way to do this is to click on the “Discover’ button, followed by ‘Commodities’.
In doing so, you can then view the many futures markets that eToro offers. When you find the market that interests you, click on the ‘Trade’ button next to the respective asset.
Step 4: Invest in Futures
To invest in futures at eToro, you need to set up an order. The first thing to do is to assess whether you think the futures contract will rise or fall in value. You can do this by selecting from a buy or sell order, respectively.
Next, you need to enter the amount of money that you wish to risk on your futures investment. You can also choose a leverage ratio, should you wish to amplify the value of your position.
Finally, click ‘Open Trade’ to place your futures investment.
What are Futures and how do They Work?
Make no mistake about it – futures are highly complex financial instruments. As such, you should avoid trading futures unless you have a firm understanding of how this marketplace works.
For the beginners in the room, the sections below explain the fundamentals of how a futures investment works in practice.
Basics of Futures
In a nutshell, futures allow you to speculate on the future value of a financial instrument – like silver or oil. You will initially do this by assessing whether you think the respective asset will rise or fall in value. This decision will need to factor in the value of the futures market, which is known. as the strike price.
For instance, let’s suppose that you are looking at oil futures – which have an expiry of three months and a strike price of $70 per barrel. This means that you need to predict whether the price of oil will be higher or lower than $70 per barrel in three months’ time. If you predict correctly, then you will make money on the trade.
If not, the opposite will happen. As we uncover in more detail shortly, when you invest in futures in the UK you do not need to cover the full cost of the position up front. This is because you can trade futures with leverage – which is ideal if you have only have access to a small amount of capital.
Futures Contract Duration
Traditional futures markets will always come with a contract expiry date. In most cases, each contract comes with a duration of three months. Some online brokers – such as eToro, will often allow you to choose from a variety of contract durations. For instance, this might include a market for 1-month, 3-month, and 6-month futures.
Either way, when the contracts do expire, this is the point at which the market will be settled.
- That is to say, if you had correctly predicted that oil would close at more than $70 per barrel in three months’ time, then upon expiry, your futures contracts would yield a profit.
- With that being said, most futures can be traded around the clock – meaning that you do not need to keep hold of the contracts until expiry.
- This is crucial, as it ensures that you can enter and exit the market at a time most favorable to you and your chosen strategy.
While this means that you can lock in potential profits before expiry, it also allows you to cut your losses if the futures position is not moving in your favor.
Futures Strike Price
Once you know the contract duration of your chosen futures market, you then need to pay close attention to the strike price. After all, this is the price that will form the basis of your speculation.
- Let’s say that the spot price of gold is currently trading at $1,810 per oz
- You are looking at a 3-month gold futures market with a strike price of $1,720 per oz
- This means that you need to speculate on whether gold will be worth more or less than $1,720 in three months’ time
Now, you might be wondering why the strike price is different from the current market value of an asset. The simple answer is that the strike price is the value at which the markets think the asset will be worth when the contracts expire. This is because of market forces – depending on demand and supply off the respective futures contracts.
For instance, if more people are bullish on the asset, then you will likely find that the strike price is higher than the current value of the instrument. But, if the markets are bearish, then expect the opposite to happen. Either way, the strike price of the futures contract will move up and down throughout the trading day. This will continue to be the case until the contract expiry date.
Long or Short
We mentioned above that the strike price of a futures market is dependent on demand and supply. This is because, unlike traditional assets, when you invest in futures in the UK, you will always be given the option of entering the market with a long or short position.
- Put simply, if you go long on the futures contract, this means that you believe the contracts will close at a higher value than the current strike price. In this scenario, you would place a buy order at your chosen futures broker.
- On the other hand, if you believe that the asset will be valued at a lower amount when the contracts expire, then you will be going short on the futures trade. In turn, you would need to enter the market with a sell order.
This is one of the main benefits of investing in futures contracts, as you can attempt to make a profit from both rising and falling markets. For instance, in the midst of the COVID pandemic in early 2020, the price of oil went on a prolonged downward spiral. This would have been a great opportunity to short-sell some oil futures contracts, as opposed to simply sitting things out and waiting for the markets to recover.
So now that we have covered the basics of strike prices and long/short positions, we now need to explain the fundamentals of contract values. This refers to the value of each futures contract that you buy or sell – in terms of the underlying asset.
- For example, when you invest in stock futures, each contract is typically made up of 100 shares.
- When you trade oil futures, each contract is usually worth 1,000 barrels.
Invariably, this can make futures inaccessible to everyday retail investors. For instance, at the time of writing, oil is priced at over $80 per barrel. This means that to buy or sell just one futures contract, you would be committed to an outlay of $80,000.
Fortunately, as we cover in the next section, most commodity brokers allow you to invest in futures with leverage. This means that you can enter the market without needing to cover the full value of the contract.
Many brokers in the UK allow you to invest in futures with leverage. This must, however, comply with FCA limits. For example, if trading gold futures, UK retail clients can access leverage of 1:20.
This means that a £4,000 position could be accessed with an account balance of just £200. Other commodities – such as oil, silver, and natural gas – can be traded with leverage of up to 1:10. If electing to trade stock futures, limits are further reduced to 1:5.
Let’s take a look at an example of investing in futures with leverage:
- Let’s suppose you are trading oil futures that expire in December 2021
- You think that the price of oil will decline in the coming days, so you go short on this futures trade
- You decide to risk £200 on this trade, alongside leverage of 1:10
- A few weeks later, global oil prices have dropped by 20% – which is reflected in your futures investment
- As such, you decide to close the position to lock in your 20% gains
In the example above, you made 20% gains on a stake of £200 – which is £40. But, you applied leverage of 1:10 to this futures investment, so your gains are multiplied by 10x. This boosts a £40 profit to £400.
Note: Leverage is a complex tool that should only be used by experienced investors. Don’t forget, leverage will amplify both winning and losing futures trades – so tread with caution.
Closing a Futures Position
In terms of closing a futures position, you generally have two options. The first is to let the futures contract run until expiry. If this does happen, your profit or loss from the trade will be determined by the closing strike price. Alternatively, most brokers allow you to cash out a futures trade before it expires. However, this is on the proviso that another market participant is happy to purchase your contracts at your desired price.
Making Money From a Futures Investment
When you invest in futures in the UK, the overarching objective is to make a profit from your market prediction. For this to happen, you need to correctly predict whether the asset will rise or fall in value, in relation to the contract expiry date.
Your potential profits will be determined by the gap between the strike price and the value of the asset upon expiry. Your profit potential will also be dictated by the amount of money that you risked on the respective trade.
To clear the mist, below we offer a simplistic example of how to make money when you invest in futures in the UK:
- Let’s say that you are looking to trade silver futures – which have a 3-month expiry
- The strike price of the futures contract is $24 per oz
- You think that this is undervalued, so you decide to long on the trade by purchasing 100 contracts
- When the futures expire in three months’ time, silver is priced at $29 per oz.
- This means you speculated correctly – and your profit stands at $5 per contract ($29-$24)
- You purchased 100 contracts, so your gross profit on this position amounts to $500 (100 x $5)
You do, however, also need to factor in fees when you invest in futures in the UK. We cover this in more detail further down.
Best Ways to Invest in Futures UK
By reading the sections above, you should now have a firm grasp of what it takes to invest in futures in the UK. However, there are many barriers that UK retail clients will face when trading futures, as this industry is typically reserved for institutional investors. This is because of the minimum outlay required – even with leverage.
For instance, we mentioned earlier that at $80 per barrel, you would need to stake at least $80,000 to enter the market. This is because each contract will consist of 1,000 barrels.
Even when applying the maximum leverage ratio of 1:10, this trade would still require $8,000. The good news is that you can bypass these barriers by instead trading contracts-for-differences (CFDs), which, for all intents and purposes, function in the exact say way as futures.
CFDs vs Futures
Both CFDs and futures will track a specific marketplace like-for-like. For instance, if the spot price of gold decreases by 2.1%, so will the respective financial instrument. This allows you to trade assets without taking ownership upfront.
However, the key difference with CFDs is that you will never be required to take delivery of the respective asset. This is quite often the case when investing in futures – as was seen during the oil collapse of early 2020.
Negative Features Prices Explained
In a nutshell, with global travel coming to a standstill, the price of oil entered a rapid period of decline. Naturally, this had a direct impact on the oil futures market. More specifically, as WTI Crude oil futures were approaching expiry, those holding contracts were desperate to sell. But, anyone buying these contracts would therefore be required to arrange delivery of physical barrels.
Under normal circumstances, this would be an issue, as investors would simply redirect the barrels to a suitable oil storage facility. But, with demand for oil at record lows, storage facilities began to dry up. And in turn, in order to avoid having to take personal delivery, those holding WTI oil futures sought to sell their contracts at a loss.
This quickly spiraled out of control and for a brief moment in time – saw oil futures move into negative territory. This meant that investors were willing to pay people to take hold of their oil futures and thus – delivery of physical barrels. As per the above example, this is why retail investors in the UK will be much more suited to CFDs.
Should I Invest in Futures?
Once again, we re-emphasize the motion that futures are complex financial products and therefore – are best suited to experienced traders. With this in mind, if you’re still thinking about investing in futures today, be sure to make the following considerations.
Keep Leverage Sensible
First and foremost, one of the main attractions of investing in futures is that this marketplace typically comes alongside leverage. This means that you can trade with more money than your brokerage account balance permits.
- As noted earlier, gold futures offer leverage of 1:20 while other commodities – such as oil and silver are lower at 1:10.
- However, as a newbie, leverage can be dangerous.
- This is because when you invest in futures with leverage, an incorrect prediction will result in losses being magnified.
In fact, if your losses exceed a certain percentage, the broker will close your position and keep your stake. This is referred to as being ‘liquidated’.
Although futures offer leverage and short-selling capabilities, this financial instrument can be somewhat inflexible. After all, your investment will only remain active for as long as the contracts are valid. That is to say when the futures contracts do expire, your position will be closed automatically.
In contrast, standard CFD markets come with no expiry date. This means that in theory – you can keep your position open for as long as you wish. And don’t forget, CFDs simply track the spot price of the respective asset, as you can still look to profit from both rising and falling markets.
The Cost of Investing in Futures in the UK?
Irrespective of the financial instrument or market, investments come at a cost. In this respect, futures are no different. This is because you will need to invest in futures via a third-party brokerage firm that can give you access to your desired marketplace.
To ensure you have a firm grasp of the costs involved, we have summarized the main investment fees associated with futures below.
First and foremost, when you buy or sell futures, standard commissions will apply. In some cases, your chosen broker might charge a flat fee. For instance, you might pay £10 for each contract that you purchase. Alternatively, some brokers charge a variable commission that is multiplied against your total stake.
For example, you might pay 1.5% of a £1,000 trade, which would amount to £15. At eToro, you can buy and sell CFD futures on a spread-only basis. This means your fee amounts to the gap between the buy and sell price of the market.
If you are looking to invest in futures in the traditional sense – it’s likely that you will be doing so with leverage. This is because the minimum contract size will often require at least a 5-figure investment.
- Although applying leverage will reduce the amount of capital that needs to be outlayed when entering a trade, this will result in overnight financing fees.
- As the name suggests, this is a fee charged for each night that your position remains open.
This fee will also come into play when you trade CFD futures.
The vast bulk of the global futures investment industry is focused on commodities. Whether that’s wheat, corn, oil, natural gas, gold, or silver – the benchmark currency that commodities are traded in, is the US dollar. As such, when you invest in futures in the UK, you need to consider exchange rate variations between USD and GBP.
This is usually charged when you enter a position – and will average 1-2%. At eToro, the broker charges a 0.5% FX on deposits, as opposed to trades. This means that once you have funded your account, it will be denominated in US dollars by default. And as such, you can then trade the global futures markets without needing to constantly worry about fluctuating exchange rates.
How to Invest in Futures UK – Conclusion
In conclusion, traditional futures markets are best left for experienced traders that have access to a large sum of investment capital. The good news, however, is that retail investors in the UK can access the global futures industry via CFDs. In doing so, you can still look to profit from rising and falling markets, as well as apply leverage.
If you’re ready to invest in futures via CFDs right now – you can do it safely at FCA-regulated broker eToro. This popular trading site offers plenty of futures markets on a spread-only basis – and the minimum deposit required to get started is just $50 – or about £35.
How to invest in futures UK?
Where to invest in futures UK?
Should I invest in futures?
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What happens if you hold futures when they expire?
About Kane Pepi PRO INVESTOR
Kane Pepi writes for several high profile publications such as InsideBitcoins, the Motely Fool, and Learnbonds. Based in Malta, Kane is extremely skilled at complex subjects related to financial matters – including a Bachelor’s Degree in Finance, a Master’s Degree in Financial Crime, and actively engaged in Doctorate Degree research, for the money laundering threats of the blockchain economy.