Whether you are new to trading futures, or a long tenured trader, there are common questions that continually surface. This article will walk through some of the key areas to help you navigate the nuances of trading futures.
What is the relationship between an Introducing Broker and Futures Clearing Firm?
The Introducing Broker is the main point of contact for managing your trading account. Questions regarding the new account process, available trading platforms, pricing, support and more will funnel through your introducing broker. Your broker will also likely have an order desk that will handle the risk management of your trading account ensuring that you are maintaining the required margin.
A Futures Clearing Firm (FCM) holds the actual funds to your trading account. Intraday margin, or the borrowed equity required to trade in a daily futures trade, is set by the FCM. With an active account, traders should receive daily statements from the FCM documenting all trade activities, commissions, fees and more.
A good example of how this dynamic works can be found when reviewing an account statement. When you receive your account statement, it’s going to be sent by the FCM, if you have a question regarding the statement however you’ll inquire with your Introducing Broker.
How do I determine my total cost per trade?
Understanding the expenses incurred with each trade and interpreting the language on a broker statement are both paramount. Below is a breakdown of the common line items and lingo that every futures trader must know.
Exchange fees are set by the Exchanges and are consistent for all traders. Unlike NinjaTrader Brokerage, many brokers include additional fees, hidden costs and more, which can make account statements a puzzle to decipher.
Commissions are the traditional benchmark for pricing and are usually presented by brokers as a per side cost. The actual commission you’ll be charged is often referred to as a round turn rate. This includes the per-side fee for both entering and exiting a position. Typically, commissions only represent a fraction of your total trading costs. Many different fees appear on a trading statement, which can lead to complications when trying to determine your total cost. While you may ask your broker to explain these fees in more detail, as they can very by broker, it’s important to understand what your total trading costs will be. It can be difficult to assess total cost as FCM’s display fees on statements differently. One constant is they should all include a line with “total”. This total fees or total fees and commissions line is what you want to identify to know how much you are paying. Before opening a new account, it’s good practice to ask your broker what the total cost per round turn will be with any additional fees. Once you’ve received a statement, ensure to confirm that your total costs match your expectations.
NinjaTrader Brokerage provides deep discount commissions as low as $.53 per contract before standard exchange, NFA and routing fees. We keep our pricing simple to demonstrate the clear savings and we always have our all-in rates posted on our website.
What Role do Risk & Margin Play in Trading Futures?
Margins are what empower leverage. Margins, as referred to by your broker or FCM, are the minimum amount of capital required to place a futures trade. These margins are set based on historical volatility. Traditionally, the greater the risk the higher the margin.
Intraday margins are set by your FCM and are often significantly lower than overnight margins. Overnight margins are set by the exchanges and include the maintenance margin per contract. Generally speaking these values will not change unless volatile markets are expected or experienced.
Due to the leverage involved in trading futures, developing good risk management habits while trading in simulation, before trading live, can be very helpful. Get started with NinjaTrader’s trade simulator for risk-free practice trading, advanced charting and backtesting.
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As an award-wining futures broker, NinjaTrader provides deep discount commissions and $500 day trading margins for many of the top futures contracts including the Emini S&P 500 (ES) and EUR/USD (6E) futures contract. Download NinjaTrader with a free futures market data trial today for a test drive.