The Pros and Cons of Trading Futures

Futures trading has become one popular way for active traders to speculate on price movements in the world’s most important markets like the S&P 500, oil, gold, and even bitcoin. These contracts offer flexibility, leverage, and the potential for strong returns. But like any financial product, they also come with risks.

If you’re wondering whether futures trading fits your goals and risk tolerance, this article will walk you through the major pros and cons. Whether you’re just getting started or looking to expand into new asset classes, it’s important to understand how futures work and what makes them different from trading stocks or options.

Let’s start with a quick refresher on what futures are before diving into the benefits and risks.

Key Takeaways

• Futures trading offers big advantages like leverage, tax efficiency, and access to global markets.
• It also carries real risks, including fast-moving prices, margin calls, and a steep learning curve.
• It’s best suited for active traders who are comfortable managing risk and making quick decisions.
• A demo account is a smart starting point if you’re unsure whether futures are right for you.

What Are Futures?

A futures contract is a legal agreement to buy or sell an asset at a set price on a specific future date. These contracts are standardized and traded on regulated exchanges like the CME Group. You can trade futures on a wide range of markets, including:

• Equity Index Futures (S&P 500, Nasdaq-100)

• Energy Futures (crude oil, natural gas)

• Precious Metals (gold, silver)

• Agricultural Commodities (corn, soybeans, wheat)

• Crypto Futures (bitcoin, ether)

• Currency Futures (euro, yen, British pound)

• Treasury Futures (10-year note, 2-year note)

Futures are used by both hedgers and speculators. Retail traders often use them to try and profit from price changes over short time frames.

The Pros of Trading Futures

1. Leverage and Capital Efficiency

Futures trading allows you to potentially control large amounts of an asset with a relatively small amount of upfront capital, known as margin. For example, you may only need $1,500 to control a Micro E-mini S&P 500 futures contract worth $20,000.

This leverage can amplify your profits, making futures attractive for traders looking to maximize their buying power. However, leverage can also increase your risk (we’ll get to that later).

2. Access to a Wide Range of Markets

Futures let you trade across multiple asset classes, from U.S. stock indexes to crude oil, gold, and agricultural products. This makes it easy to diversify your trading and pursue different strategies, even if the stock market is flat or closed.

Want to go long on the S&P 500 and short oil? With futures you can do that all from one account.

3. Nearly 24-Hour Market Access

Futures markets are open almost 24 hours a day, five days a week. This gives traders the ability to respond to global news and events in real time, even outside of regular stock market hours.

If something major happens overnight, you don’t have to wait until 9:30 a.m. to react. Futures traders can take action almost immediately.

4. High Liquidity in Major Contracts

Popular futures contracts like the E-mini S&P 500, crude oil, and gold have deep liquidity. This means it’s easier to enter and exit trades without much slippage or price movement.

Liquidity also leads to tighter bid-ask spreads, which helps reduce your overall trading costs.

5. Transparent and Regulated Markets

Futures are traded on centralized exchanges with strict rules and oversight. This leads to price transparency and fair access for all participants. You don’t have to worry about hidden fees or payment-for-order-flow like in some stock trading apps.

The market is regulated by the CFTC, which helps protect traders from fraud and market manipulation.

6. Built-In Risk Management Tools

Futures traders can use stop-loss orders, limit orders, and daily mark-to-market settlements to help manage their risk. This allows you to set clear boundaries for each trade and avoid emotional decisions.

MetroTrade, for example, offers these tools right from the chart interface on both web and mobile.

7. Tax Advantages for U.S. Traders

In the U.S., most futures contracts fall under Section 1256, which offers a 60/40 capital gains tax split. That means:

• 60% of your gains are taxed at the long-term rate

• 40% are taxed at your short-term rate

This can result in a lower overall tax bill compared to day trading stocks or options.

The Cons of Trading Futures

1. Leverage Can Magnify Losses

While leverage is a key benefit, it’s also one of the biggest risks. A small price move in the wrong direction can lead to outsized losses. If you don’t use proper risk management, you could lose more than your initial margin.

This is why education, discipline, and stop-loss orders are critical.

2. Steep Learning Curve

Futures can be a challenge for beginners. New traders must understand terms like tick size, notional value, initial vs maintenance margin, and contract expiration.

Making a mistake (like trading the wrong contract size or holding into expiration) can be costly. Fortunately, there are plenty of resources for futures education. 

Visit our Learn page to learn everything you need to know about futures.

3. Fast-Paced and Emotionally Intense

Futures markets can move quickly. Intraday swings can be sharp, and emotional decisions like panic-selling or overtrading can hurt performance.

Successful futures trading requires a calm mindset and a solid trading plan.

4. Margin Calls and Liquidation Risk

If your account balance falls below the maintenance margin, your broker may issue a margin call or automatically close out your position. This is known as forced liquidation and can lock in losses if you aren’t monitoring your trades.

Traders should always maintain enough buffer (or margin in industry terminology) in their accounts to avoid surprises.

5. Expiration and Rollover Complexity

Every futures contract has an expiration date. If you’re holding a position in an expiring contract, you’ll need to roll it to the next month or exit your position.

Managing rollover dates across multiple positions adds complexity and requires attention to detail. It’s not a “set it and forget it” type of investment.

Who Should Consider Trading Futures?

Futures trading isn’t for everyone. It’s best suited for:

• Active traders with a solid understanding of market dynamics

• Traders looking for high leverage and access to diverse markets

• Individuals who are comfortable with short-term strategies and fast decisions

• People with strong risk management skills

On the other hand, futures may not be ideal for:

• Passive investors focused on long-term wealth building

• Beginners who aren’t familiar with trading basics

• Anyone who is uncomfortable with volatility or potential fast losses

If you’re still on the fence, consider creating a futures demo account to get a feel for how the platform and contracts work without risking real money.

Final Thoughts

Futures trading offers unique benefits: low capital requirements, access to global markets, nearly round-the-clock trading, and even tax advantages. But it also requires discipline, skill, and a clear understanding of the risks involved.

Before diving in, take time to learn how futures work. Read educational content, use a simulated trading account, and focus on managing your risk. When used responsibly, futures can be a powerful tool in your trading toolbox.

Want to see if futures trading fits your style? Try out a MetroTrade demo account and explore the markets with $5,000 in simulated funds.

Frequently Asked Questions