What Are the Different Types of Futures?

Date Modified: 26/03/2023

Futures come in different forms and types and can provide access to a wide range of financial markets. This article delves into the different types of Futures contracts available for trading in general, and on Plus500’s trading platform, in particular.

Essentially, Futures can be segmented into two main classes; Financial Futures and Physical Commodity Futures. These two categories allow traders to access multiple markets from Cryptocurrency to Forex, and Commodities such as Agriculture to Energy, and more.

Financial Futures vs. Physical Futures

Although physical Futures are considered one of the oldest and most traditional forms of Futures, to regular stock traders and investors, financial Futures may sound more familiar and modern. While through physical Futures, the underlying asset was traditionally delivered by the termination of the contract, Financial Futures are usually cash-settled. Over time, most physical Futures also became cash-settled (depending on the Futures provider).

Historically, the first financial or cash-settled Futures contract dates back to 1981’s Eurodollar Futures contract which is based on Interest Rates. Since Interest Rates cannot be delivered physically at the end of the contract, it was approved by the Commodity Futures Trading Commission (CFTC) to apply the idea of a cash-settled Futures contract to Interest Rate Futures as well as other types of Futures such as Commodities. Moreover, Financial Futures usually give access to Crypto, Forex, Interest Rates, and Equity Indices, while Physical Futures provide exposure to more tangible items Energy, Metals, and Agriculture.

Oil, Gold, and Wheat Futures

Cash Settled Futures

Cryptocurrency Futures

Due to their decentralized nature and the solution their present for modern-day payments, Cryptocurrencies have grown increasingly popular over the years. These digital currencies may be accessed in a plethora of ways and one of which is through Cryptocurrency Futures. A Cryptocurrency Futures contract involves buying or selling an asset at a predetermined price in the future irrespective of its price at the expiry of the contract. Like in all types of Futures contracts, Crypto Futures also allow traders to speculate on the prices of the underlying Cryptocurrency, i.e. whether or not the price of the Crypto will rise or fall. Moreover, when comparing Crypto Futures and spot trading or peer-to-peer Crypto trading, one may note some significant differences. For example, while the other forms of trading involve trading one Cryptocurrency for another, Futures trading involves one asset (the contract). Additionally, the trading is conducted between two parties; a buyer and a seller, rather than trading Crypto through a Crypto exchange. However, the most prominent difference between Crypto Futures and trading through Crypto exchanges, for example, is that in the former, you don’t get ownership of the Cryptocurrency, instead, you are speculating on its price movements without owning it. On Plus500’s Futures platform, one may trade Futures contracts on two of the most famous Cryptocurrencies; Bitcoin and Ether.

Forex Futures

The Forex market is considered the world’s largest market. It also has high liquidity and trading volumes and can be accessed through Forex Futures which are also called ‘Forwards’. Forex Futures are derivative contracts stipulating that a buyer and seller trade foreign exchange currency pairs at a future price, amount, and time. By purchasing currency Futures contracts, you lock in an exchange rate, and if the contract expires at a higher value, you must purchase underlying Forex pair with a higher price. This differs from Spot Forex, where currency pairs are traded on the spot. Furthermore, a Forex Futures contract is also useful for hedging exposure to currency fluctuations, as well as speculating for potential profits. On Plus500’s Futures platform, for example, you can trade Forex Futures on some of the most traded Forex pairs like the EUR/USD and the GBP/USD.

Interest Rates Futures

Interest Rates are either the percentages that you earn from your savings or the percentages that you owe your lender as a result of borrowing money. Interest Rates tend to change in light of macroeconomic shifts like inflation, recession, and even geopolitical tensions. Accordingly, through Interest Rates Futures one may potentially benefit from these changes. Interest rate Futures are Futures contracts with underlying interest-paying instruments. The contract consists of an agreement between a buyer and a seller for the future delivery of an interest-bearing asset at a future date. In other words, Interest Rate Futures contracts enable buyers and sellers to lock in the price of interest-bearing assets in the future. Government bonds and money market securities can also be managed using interest-rate Futures in a capital-efficient manner. And most importantly, Interest Rate Futures allow investors to speculate on the direction of Interest Rates or hedge against them. With Plus500, traders may trade Futures on the Eurodollar, US Treasury Bonds, and more.

Equity Index Futures

Equity Indexes are an aggregate of a set of statistics that are formed by the use of a grouping of securities that have been priced to a fixed value at a specific date. The objective of Equity Indexes is to give investors an insight into a particular time period's price appreciation or total return by combining a group of securities to be traded together. Additionally, Index Futures are cash-settled derivatives that allow investors to buy or sell an underlying listed financial instrument at a fixed price in the future. Plus500 offers Equity Index Futures on some of the world’s most popular Indexes like the Nasdaq and the S&P 500. This way, traders may potentially use multiple Indexes’ price movements to their advantage without having to trade them individually.

Physical Commodity Futures

Agricultural Futures

Perhaps the oldest form of Futures trading Agricultural Futures trading gives traders the opportunity to speculate on the price movements of essential commodities like corn, soybeans, wheat, and even cattle and hogs. These types of Futures can have significant effects on the prices of certain goods in stores and thus affect measurements like CPI and inflation. Agricultural Futures trading offers the most liquidity, making it possible for traders to exit and enter at the best price quickly and efficiently. Nonetheless, as day traders rarely want to receive the physical commodity at the end of the contract, this type of contract is rarely delivered. Accordingly, with Plus500, traders don’t receive the commodity at the expiration of the contract as these contracts are cash-settled.

Metals Futures

Metals Futures provide traders with access to some of the most precious metals like gold or silver without them having to actually own any. Instead, the buyer and seller agree to trade the underlying metals at a fixed price, place, and time in the future. Metal Futures are offered by Plus500 in many different types, such as Gold Futures which may increase the stability of your portfolio against inflation, Copper Futures which may assist you in protecting against cyclical market fluctuations and swings, and Steel Futures which may assist you in mitigating supply chain risks.

Energy Futures

Generally speaking, Energy Futures refers to the process of trading indispensable and valuable Energy commodities and sources such as Crude Oil and Brent Oil. Moreover, traders who seek potential profits from price swings look to energy commodities since there is quite a bit of volatility. Consequently, those who aim to leverage this volatility can do so through Energy Futures with Plus500. In this type of Futures contract, energy products are the underlying asset that can be bought or sold at a predetermined future price and date. In addition to speculating on the Futures market, investors can use them as a hedge against fluctuating prices or external risks that may affect the underlying commodity.

Conclusion

The Futures market is multifaceted and diverse and with Plus500, traders may access many of these liquid and highly traded markets depending on their goals and objectives. Through the different types of Futures, traders can, therefore, diversify their portfolios. Alternatively, traders may use Plus500’s free and unlimited demo account in order to try Futures trading without committing their capital entirely.