Options | Futures | CFD's | Spread Betting

FUTURES

A Futures Contract loosely defined allows you the punter to buy or sell a specific underlying instrument or asset at a specific time in the future, for a specific price. Buying (going long) a future commits you to buying the underlying at a future date. Selling (shorting) a future commits you to selling the underlying at a future date. All futures are exchange-traded contracts and they're standardised in terms of the delivery date, the amount of the 'underlying' they relate to, and the contract terms. Private punters generally use futures to speculate on price movements in the major indices, i.e. FTSE100.

Futures contracts can also be freely bought and sold before the contract expires (i.e. before the point at which the underlying must be delivered or the contract cash settled).

Generally, traded contracts are referred to by month. A particular delivery month will stop trading on a certain published date. The FTSE 100 index futures contract usually stops trading on the third Friday of the delivery month. For each particular instrument or commodity, a range of month names can be selected to trade at any point in time. The London International Financial Futures Exchange (LIFFE) offers trading facilities with a wide range of contracts based on Stocks, Indices, Commodities, Bonds and Interest Rates.

FOR

1. You the punter can profit from correctly anticipating future market price changes and by 'shorting', you can sell a future and benefit from a fall in price.
2. They can also be used as a form of insurance to protect the value of your investments against a fall in value, or alternatively to track a market index.
3. You the punter can speculate on future price moves with a relatively small capital outlay. Given that the contract is a leveraged investment, less capital is put at risk.
4. Futures are standardised contracts traded on regulated exchanges. This makes trading easier, as the only variable is the contract price.

AGAINST

1. Unlike spreadbetting for instance, exchange traded futures aren't classified as betting and therefore aren't exempt from capital gains tax under current UK law.
2. Relatively few brokers offer execution facilities for futures contract.
3. The relative complexity of Future's Contracts can often serve to baffle the punter as in general they are more difficult to understand than shares.