Best Futures Brokers UK

Which broker is best for futures trading?

Realistically, the best futures broker will come down to your personal circumstances, including how much you have to invest, how much experience you have, and your investment goals.

For example, your trading needs might be low rates of commission and a small initial deposit. In that case, Interactive Brokers might be the platform that will best suit you.

Meanwhile, if you’d prefer access to a wide range of assets regardless of the cost, then the IG platform might suit you better, with access to more futures indices than any other broker.

Make sure you fully research the different brokers on offer so you can make an informed decision on the correct one for you.

What is a futures broker?

A futures broker is simply any investment broker or platform that offers access to the futures markets.

Futures brokers either provide direct market access to futures exchanges where you can buy and sell contracts yourself.

Alternatively, they may allow you to trade derivatives on futures contracts using spread bets or CFDs.

5 easy steps to start trading futures

What is futures trading?

Futures trading involves trading a futures contract. In futures contracts, a buyer purchases a contract that allows them to trade a certain asset on or before a specific future date for a predetermined price.

If you have entered a futures contract, you must make the trade on expiry. This differs from options markets where there’s no obligation for you to purchase the underlying asset at the end.

You can trade futures on a range of financial instruments and asset classes through exchanges such as the London Stock Exchange. Futures contracts can be traded on assets including:

• Stock indices, such as the FTSE 100 or S&P 500
• Commodities, such as oil
• Bonds
• Forex.

How do futures traders make money?

Futures trading works by buying, selling, or speculating on the value of these contracts. There are various ways futures traders can generate returns from contracts, with some common methods being :

1. You buy a futures contract at a predetermined price on an asset that then rises in value. In doing so, you pay a lower price than you would have done if you had bought the asset once its price increased. This is known as “going long”.
2. You buy a futures contract on an asset that rises in value. You then sell your futures contract to another buyer before expiry so that they can buy at the agreed price, pocketing a premium in return.
3. You can sell a futures contract on an asset that you think will fall in value. If it does, you’ll be paid a higher price than the asset will be worth at expiry. This is known as “going short”.
4. You use spread bets or CFDs to speculate on the value of futures contracts, rather than owning the contract on the asset yourself.

Find out more about how these work in my example below, and more about trading derivatives later in my guide.

An example of a futures trade

Consider these examples of a futures contract in action.

Please note that these figures are entirely illustrative and do not represent what is happening in the market, or what will happen in future.

Taking a long position

Imagine that crude oil is trading for £90 a barrel. You see on your futures trading broker’s platform that there is a futures contract offering 100 barrels of crude oil at £95 per barrel at the start of next year on 1 January.

You think that the price of oil is actually going to rise beyond this price to £100 a barrel, so you buy the futures contract. That’s 100 barrels at £95, totalling £9,500, which you will have to pay on the expiry of the contract.

By 1 January, oil prices have reached £100 as you predicted. That means whoever sold you your futures contract must now sell you the oil at £95, as per the contract. So, you now have an asset worth £10,000 but you only paid £9,500, meaning you made a gain of £500.

On the other hand, had oil prices dipped to £85 a barrel at contract expiry, you would still have had to pay the agreed contract price of £95. In this case, you paid £9,500 for assets now worth £8,500. In total, that means you made a £1,000 loss in value.

Taking a short position

With futures contracts, you can also take a short position if you think that the value of the asset is going to fall instead. That means you sell a futures contract where you agree to sell the asset for a predetermined price and date.

Using the example above again where oil is £90 a barrel, you might sell a futures contract to a buyer which states that they will buy 100 barrels of oil from you at £95 on 1 January, a total of £9,500.

On expiry, oil is trading at £85 as you predicted. The buyer must still pay you the £9,500 for an asset that is now worth £8,500 – a £1,000 gain for you.

Of course, had oil increased to £100 a barrel, you’d have to sell your oil now worth £10,000 to a buyer for the agreed £9,500 – essentially a £500 loss.

Settling contracts in cash

As most traders and investors don’t actually own 100 barrels of oil or whatever asset they’re trading futures on, many contracts are actually instead settled in cash value.

So, regardless of the outcome of the trade, the asset in question may never even change hands.

Trading derivatives on futures contracts

Rather than entering futures contracts yourself, you can speculate on their value by trading derivatives, such as CFDs and spread bets, on futures instead. This is how many of the best futures brokers I mentioned earlier provide you with access to the futures markets.

Spread betting on futures contracts

Spread betting involves speculating on the upward or downward movement of a futures contract without ever owning the contract or the asset itself.

You place a bet on a certain number of “points” that you think a contract will rise or fall in value by. Your returns are then linked to whether you are correct.

As spread betting is considered to be gambling rather than investing, your gains are free from Capital Gains Tax (CGT) in the UK.

Trading CFDs on futures contracts

CFD trading also involves speculating on the price movements of an asset, with your profits or losses determined by the difference in value from the start of the contract to the close.

It’s important to note that trading CFDs comes with a great deal of risk. In fact, providers are required to include a risk warning on their website that tells you how many retail investor accounts lose money when trading CFDs with them.

This figure is typically between 50% and 80%, meaning there is a great likelihood that you will lose money when trading CFDs.

These are complex instruments, so make sure you fully understand how they work before you start trading. If you aren’t sure, consider taking independent financial advice.

Pros and cons of futures trading

So, now you know how they work, why trade futures? Read about a few of the major pros and cons to take into account when trading futures.

Pros of futures trading

• Fixed trading costs from the outset

The price you pay for a futures contract is fixed from the outset, meaning you know exactly how much you’ll pay in the event that you hold the contract until expiry.

Additionally, unlike an options contract where the value decays over time, futures contracts stay at the same value until expiry.

• Ability to hedge risk

Futures contracts allow you to hedge risk on your assets. Rather than hoping that the price of an asset will change favourably, using a futures contract means you will be able to purchase it at a guaranteed price later down the line.

This hedges risk compared to buying the asset at the outset and holding it in the hope that it behaves as you expect.

• Highly liquid

Futures contracts are often for highly liquid assets, such as indices, currencies, and commodities. As a result, you can typically enter and exit positions quickly and easily.

Cons of futures trading

• A potentially high-risk investment strategy

All investing involves risk, but futures contracts can present a high risk of losing money, as you can never know which way the market will move.

Many factors can cause price fluctuations, from wider economic factors to company results and announcements. This can change the value of an asset in a direction that isn’t favourable to you.

As a result, futures contracts may only be suitable for advanced traders who are willing to take on this additional risk.

If you’re unsure whether futures trading is suitable for you, consider taking independent investment advice.

• You are obligated to make the trade

Unlike options contracts where you have the right rather than the obligation to trade an asset at a certain price, you will have to make your trade on the expiry of a futures contract.

This may mean you end up with a less favourable price on your asset than what it is currently trading at in the market.

If you’d rather provide a hedge to your investments without the obligation to buy, you may want to consider options trading instead.

• Leverage can expose you to substantial losses

One of the biggest risks that comes with futures trading is in using leverage with your broker.

Leverage means you only have to put down a portion of the investment amount, known as the “margin”, when making your trade. This means you can trade larger sums with a smaller upfront investment, potentially magnifying your gains.

However, losses will also be magnified, meaning you may be at risk of losing money rapidly.

In the UK, the Financial Conduct Authority (FCA) offers negative balance protection for investors so that you can’t go below £0 in your leveraged trading account.

Even so, you still stand to lose more than the margin when trading using leverage.

Best Futures Brokers UK FAQs

Please note

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.

CFDs are complex instruments and more than half of retail investor accounts lose money when trading CFDs. Please make sure that you know these risks before you start trading and that you’re aware there’s a high chance of losing money rapidly on your investment.