Last Updated on 7 April, 2022 by Samuelsson
Futures trading began as early as the 1800s, but it wasn’t until 1974 that regulated trading started in the United States after Congress passed the Commodity Futures Trading Act to add federal oversight. The Act established the Commodity Futures Trading Commission (CFTC). Actually, the original Commodity Futures Trading Act was amended by the Futures Trading Act of 1982 and thereafter by the Commodity Futures Modernization Act in 2000.
Initially, futures contracts were only for trading agricultural produce on paper, but the concept has expanded over the years to include a variety of different assets, including financial assets. Most recently, many futures exchanges have included Bitcoin futures. Interestingly, both institutional and retail traders can trade futures.
What are futures, and how do you trade them?
A futures contract is an exchange-traded derivative contract, which represents a legal agreement between two trading parties to buy and sell a commodity or financial instrument at a pre-agreed price; however, the physical exchange of the asset and payment between the dealer and trader will happen on a future date.
So, a futures contract can be seen as a “buy now, pay and exchange later” kind of contract. The primary reason for agreeing, at the present moment, on the price at which the asset will be delivered in the future is to protect both parties from any unforeseen circumstances, which could affect the price of the asset in a manner that may be unfavorable to either the buyer or seller of the asset. In other words, it is used to hedge risk.
But beyond hedging, many futures traders do trade futures contracts for speculation. This is because futures contracts allow market participants to place bets on future pricing and the direction of change in future pricing of commodities, financial products, and certain other assets and instruments. However, the futures market can be volatile and illiquid, so it may not appropriate for inexperienced traders and investors who can be at a great risk trading on margin — a requirement for futures market participants.
Futures contracts are usually traded on futures exchanges, and there are several of them all over the world such as the Eurex Exchange and the CME Exchange. To gain access to the contracts traded on these exchanges, you need a reliable futures broker. The good news is that many of the big online brokerage brands you know for stock trading also offers futures brokerage services, but there are also specialized firms that offer only futures trading services.
So, whether you’re looking for a full-service brokerage firm that has futures trading as just one of its services or a specialized futures brokerage firm, there are factors you should consider when checking the best online brokers for futures trading.
Factors to consider in choosing the best futures brokers for trading futures
There are several factors to consider when choosing the best online broker for futures trading. These are some of them:
While the process of choosing the right broker for futures trading may be difficult and confusing, especially for less experienced traders, the first thing you should check is whether the broker is, indeed authorized and a registered member of a futures exchange. The broker should clearly specify which government agencies regulate its operations in every country it operates in.
In the US, the futures markets are regulated by the Commodity Futures Trading Commission (CFTC), which is an independent federal agency that regulates the derivatives markets in the country — that includes all futures, swaps, and some kinds of options. Similarly, in the UK, the futures exchanges and brokers are regulated by the Financial Conduct Authority (FCA), while in Australia, the market is regulated by the Australian Securities and Investments Commission (ASIC).
Unlike the stock market that allows a 50% margin, or 25% for pattern day traders, the futures markets allow much lower margins — as low as 2-5% of the total value of the contract. The margin requirements are determined by the futures exchange itself using some risk-based algorithms.
However, some brokers post the margin requirements as fixed prices instead of percentages. A broker’s initial and maintenance margin may vary, and they normally depend on a large number of factors, including the investor’s country of residence, the type of underlying asset being traded as a futures contract, and many more. But you should know that the use of leverage always increases the risk, which is why some brokers offer stop losses and other types of investor fund protection. You should be sure of what your broker offers in this regard.
With the advent of electronic trading, the futures markets have become accessible to anyone. But to trade futures, you need to do that on a modern, functional trading platform — the software that connects your orders to the exchange via your broker. In addition to facilitating the trade of various assets, a trading platform should also provide research, analytic tools, education, and sometimes, news feed.
There are various futures trading platforms, and they are usually available in the desktop and web versions. Most times, the trading platform offered by futures brokers is also made available as fast and convenient mobile apps that can be downloaded from the App Store and Google Play.
Commission and fees
In futures trading, you will encounter various fees that are charged for different aspects of the trade and different periods. The common ones are the spread and commissions. The spread is the difference between the bid price and the ask price, while the commission is what the broker charges for helping you to buy the futures contract at the exchange. The good thing about broker commission is that it decreases as the trading volume gets larger.
While some brokers offer fixed prices per contract, others have more complex pricing schemes. Also, there may be exchange fees, regulatory and clearing fees, as well as overnight position fees. When choosing a futures broker, go for firms that offer low fees and commissions, but more importantly, you should go for a broker that has clearly defined fees and a transparent pricing system.
Deposit and withdrawal method
The method for deposit and withdrawals should be popular and easy to use, and the processing period should be short too. So, before choosing a broker be sure that it can get deposits and withdrawals processed within 2 to 3 days. The withdrawal aspect is very important because it is generally more difficult to get your money out after a deposit.
How good is the broker’s customer support services? Is the customer support team always available, especially during trading hours? Since clients invest real money and are exposed to real market risk, the customer service team should always be available to assist at any time they are called. Also, the support team should easily be contacted. In fact, all respected online brokers offer professional, multilingual customer service that is available 24/7.
It may be necessary to check whether the futures broker has an international presence in multiple countries. Can they communicate in your local language or another language you are fluent in? International presence also means that the broker has access to different futures exchanges around the world.
The history of the broker matters a lot. A broker that is new in the business has not been tested and trusted. It may not have all the necessary experience to survive in the market. Make sure the broker you choose has a history of at least 2 years.
The best online futures brokers for trading futures
While there are many other online brokers for futures trading, our choice of best futures brokers and futures trading platforms includes the following:
- Interactive Brokers
- TD Ameritrade
- Charles Schwab Futures
- Generic Trade
1. TradeStation Futures
TradeStation, being a trading technology leader, supports both casual traders (through its web-based platform) and frequent traders (through its award-winning desktop platform), and it offers $0 stock and ETF trades. With a robust trading platform, free market data, a wide range of trading instruments, $0 trades, reduced overnight margins, educational resources, and no pattern day trading rules, TradeStation appeals to beginners and experts alike, as it makes things easier for retail investors to compete with globe-spanning institutional players.
Here are the key features that make TradeStation one of the best futures brokers:
- The trading platform: There are three of them: TradeStation Desktop, TradeStation Web Trading, and TS Crypto. The desktop platform is the company’s flagship product and comes with advanced trading tools, while the Web Trading platform is a browser-based platform designed for traders seeking simplicity. The TS Crypto platform is dedicated solely to cryptocurrency trading. Futures traders will find the TradeStation desktop very easy to use as many of the advanced tools used for trading equities apply to futures trading, creating a seamless trading experience. Interestingly, those who are registered with the broker can use the platform free of charge, but non-customers will have to pay subscription fees to use the platform. TradeStation also has a mobile app that is meticulously designed to provide the functionality that active and professional traders need to succeed, including robust charting and watch list.
- Tradable securities: TradeStation provides its customers access to a nearly complete offering of more than 350 trading products, covering currencies, market indexes, metals, fixed-income instruments, energy, and agricultural products. Cryptocurrencies can also be traded through TS Crypto, which requires a separate account login. Additionally, clients can access IPOs through ClickIPO, which can be accessed via conditional orders.
- Commissions and fees: TradeStation offers a variety of different commission structures, and the most commonly used pricing plans — TS Select and TS Go — offer $0 trades, are easy to understand, include free market data, and incur no monthly platform charges. For those who want to trade bitcoin and other popular cryptocurrencies, TradeStation Crypto offers competitive fees that start from 0.5% for market orders and limit orders for balances up to $100k.
- Education and research: The broker offers many education and research resources via the YouCanTrade website they launched in 2019. Traders who need those resources can pay to gain access to full-featured courses, including webinars, live trading room access, real-time alerts, and more.
2. Interactive Brokers Futures
Interactive Brokers is more popular among the institutional trading community, including hedge funds and prop companies. Requiring a $100,000 minimum deposit for margin accounts, Interactive Brokers isn’t friendly to a retail day trader; however, it does offer the lowest margin rates in the industry. In fact, Interactive Brokers attracts frequent traders with low per-share pricing, an advanced trading platform, a large selection of tradable securities — including foreign stocks — and ridiculously low margin rates, and through its new offering, IBKR Lite, the broker offers commission-free trades of stocks and ETFs. The key features of Interactive Brokers include:
- Impressive trading platform and tools: Interactive Brokers provides traders with the Trader Workstation (TWS) platform, which offers programmable hotkeys and a slew of order types for placing every possible trade imaginable, including algorithmic orders. Although TWS is not designed for beginner traders, it easily be seen as the industry’s best online futures trading platform, with tools like Algo trading, Options Strategy Lab, Volatility Lab, Risk Navigator, Market Scanner, Strategy Builder, and Portfolio Builder. There is also the IBot, which uses a foundation of artificial intelligence to quickly service customer requests via chat (or voice in the iPhone app). Interactive Brokers’ mobile trading app is well supported across all devices. It offers lightning-quick data streaming, robust charting with over 70 optional indicators and easy customization, full-featured order entry, and portfolio management.
- Tradable instruments: Interactive Brokers offers the most diverse range of trading instruments among online stock brokers, and it is a market leader when it comes to international trading. In fact, Interactive Brokers’ clients have access to more than 135 international markets in 33 countries.
- Commission and fees: Basically, Interactive Brokers offers two pricing plans: IBKR Pro (for professionals) and IBKR Lite (for casual traders). On the IBKR Lite plan, there are no inactivity fees or data fees, and all US stock and ETF trades are $0. With the IBKR Pro plan, the standard fixed pricing for trading U.S. stocks is $.005 per share, with a minimum of $1.00 and a maximum of 0.5% of trade value.
- Education and research: Interactive Brokers offers numerous trading and investing education resources. It has a Traders’ Academy portal where expert traders organize trading courses and webinars, with a wide variety of written material and accompanying video content, including quizzes. Although progress tracking is not included for videos and articles, it is for quizzes, and there is at least one quiz per lesson. Additionally, there is the IBKR Quant blog, which a lot of trading articles.
3. E*TRADE Futures
With a library of educational resources, a professional-level trading platform, and tools to help assemble a risk-appropriate, balanced portfolio, this online broker offers great value to both beginners and advanced traders. Moreover, frequent traders will appreciate the firm’s $0 commission for all stock, ETF, and options trades. The key highlights of E*TRADE include:
- Great trading platforms: Both the E*TRADE Web and Power E*TRADE are free and available to all customers, with no trading activity or balance minimums. Some of the features of the E*TRADE Web platform include free streaming market data, free real-time quotes, analyst research stock screeners, live market commentary, and more. You can track your accounts, create watch lists, view market data, and make trades from the dashboard. The Power E*TRADE platform, the result of the company’s acquisition of OptionsHouse several years ago, is suitable for highly frequent traders. The web-based platform offers real-time data, over 100 technical studies, more than 30 drawing tools, streamlined trade tickets, customizable options chain views, and trading ladders
- Mobile app: The broker offers two free mobile apps for both iOS and Android devices. On the E*TRADE mobile app, you can easily manage your account, place trades, and get real-time quotes and news, including Bloomberg TV. Also available for Apple Watch, the E*TRADE mobile app offers advanced mobile features like stock and ETF screeners, as well as multi-leg options trades. The Power E*TRADE app, on the other hand, offers a customizable options chain, a selection of popular technical studies, different charts, streaming quotes, and news. The app can be used for trading complex strategies, including four-legged option spreads, and futures traders can enter futures orders directly from the futures ladder.
- Security choices: The broker offers a range of trading instruments that will please both active traders and investors. The tradable securities include futures and advanced options strategies, as well as more than 4,500 no-transaction-fee mutual funds. However, mutual funds that are not on the no-fee list will cost $19.99 per transaction. The broker’s analysts regularly update a list of highlighted mutual funds in their All-Star Funds Report, which contains the top no-load funds and ETFs offered.
- Free commissions: Following the trend of no-commission trades, the online broker removed its once-high $6.95 trade commission and now charges $0 for online stocks, options, and ETF trades. However, options, including options on futures, still carry a contract charge, but that was reduced to $0.65, with a discounted fee of $0.50 for active traders.
4. TD Ameritrade Futures
TD Ameritrade is one of the most popular online brokers in the United States. It delivers the ultimate trading package, as it requires a $0 minimum investment and delivers standout features, including extensive research and data; portfolio-building guidance; $0 commissions for stock, options, and ETF trades; and reliable customer service. The top highlights of TD Ameritrade include:
- Tradable securities: TD Ameritrade offers the full range of investments, including futures and forex and bitcoin futures trading, for approved clients. The broker offers a selection of over 4,000 no-transaction-fee mutual funds. It also excels at offering low-cost and low-minimum funds, with over 700 mutual funds with expense ratios of 0.50% or less and over 1,300 with investment minimums of $100 or less. So, TD Ameritrade ideal for beginners.
- Trading platforms: TD Ameritrade offers a top-rated trading platform that is available in desktop, web, mobile, and mobile web versions. The desktop trading platform is called thinkorswim and is aimed at serious stock, ETF, options, futures, and forex traders owing to its advanced trading features, including a robust lineup of technical analysis tools and studies, customizable screeners and charting, backtesting capabilities, real-time news, quotes, market heat maps, and more. There is also the web-based platform, which can be accessed via TDAmeritrade.com. TD Ameritrade Mobile (iOS and Android) and the TD Ameritrade thinkorswim app are a companion app to the desktop platform. The broker also offers TD Ameritrade Mobile Web, the browser-based platform optimized for mobile devices.
- Trading support and education: TD Ameritrade offers excellent support services and also provides a lot of educational resources — videos, articles, slideshows, and quizzes, as well as ongoing live online seminars and in-branch presentations. The broker also hosts eight hours a day of educational webcasts and holds over 40 live events each year at local branches.
5. Charles Schwab Futures
Established in 1973, Charles Schwab is one of the best online brokers that offers full-service brokerage products to cater to investors and traders of all types. Charles Schwab Futures offers a $0 account minimum and has the educational resources, which will appeal to beginner traders, while its sophisticated tools and $0 commissions for stocks, options, and exchange-traded funds will appeal to active traders. It has a lot of good features, including the following:
- Robust trading software: Charles Schwab offers a web-based trading platform that can be accessed via the Schwab website. The robust platform is free and available to all trading services clients. There is also StreetSmart Edge, a customizable platform available with downloadable software or via cloud-based technology online; it has a suite of programs called StreetSmart Central for options trading. The broker also offers mobile trading, available on either the Schwab or StreetSmart Mobile apps. All the available platform offers access to research and robust tools that are useful to various types of traders. While the other platforms offer more sophisticated features, the Schwab website only handles basic trades.
- Trading instruments: As with other full-service brokers, Charles Schwab offers a complete suite of products and services. Charles Schwab provides everything from stocks and futures trading to fixed income and retirement guidance, including Individual, Joint, Traditional IRA, Roth IRA, Rollover IRA, Inherited IRA, Custodial IRA, 529 plans, charitable accounts, and even estate and trust accounts.
- Fractional shares offering: Charles Schwab also offers fractional shares, making it possible for traders to buy a small slice of a stock rather than paying the full share price. Single slices can go for as little as $5, and traders can buy up to 10 slices at a time. However, Charles Schwab only offers fractional shares for stocks of S&P 500 companies.
- Fees and commissions: The commissions for stock and ETF trades are $0, while options trades are just $0.65 per contract. Furthermore, all transaction fee mutual funds cost $49.95 per trade.
Lightspeed is one of the best online brokers available, but with high balance requirements and monthly commission minimums, this futures broker caters to professional or extremely active traders involved in day trading. However, the broker offers low-cost options and futures trading, and it provides professional trading platforms and tools. While futures traders may enjoy the broker’s services, the minimum monthly commission and high balance requirements aren’t a good fit for anyone who isn’t very active in the market. As one of the popular online futures brokers, Lightspeed has the following features:
- Multiple trading platforms: Lightspeed has multiple trading platforms that cater almost exclusively to hedge funds and institutions. The Lightspeed Web/Mobile Trader platform is best suited for non-professional individual investors, while the desktop-based Lightspeed Trader platform, which offers expedited order entry and execution, is for more active traders. Traders pay a $130 monthly platform fee for access, but the fee is reduced by any commissions generated from trading. Lightspeed Trader offers direct-market access, speeding up order fulfillment to nanoseconds, which matters a lot to day traders.
- Trading instruments: While Lightspeed gets recognized as one of the few online trading brokers that offer futures trading, its services are not targeted at regular retail traders and investors. The broker has no commission-free ETFs and offers zero mutual funds.
- Minimum deposit: The minimum deposit requirement for Lightspeed Web/Mobile version is $10,000, while that for the desktop-based Lightspeed Trader is $25,000 for a regular brokerage and $10,000 for a retirement account.
- Commissions and fees: Lightspeed charges customers with account balances of less than $15,000 a $25 monthly minimum commission fee, but they subtract any actual commissions the customer paid during the previous month. However, non-pro stock and options traders don’t pay monthly market or data fees on Lightspeed Web/Mobile Trader.
7. Generic Trade
Generic Trade is one of the options and futures brokers that offer low-cost trading. The firm believes futures traders already have so much information at their disposal, so they mostly need a firm to execute their trades at the lowest cost. This futures broker doesn’t have minimum account balances and volume requirements, making it accessible to most retail traders who desire the best futures services.
- Trading platform: Generic Trade offers three platforms: Generic Trader Online, which is a web-based platform; Generic Trader Professional, which is a powerful desktop platform; and Generic Trader Mobile, which is a mobile platform for Android and iOS devices.
- Trading instruments: The broker offer options and futures traders the ability to trade their preferred contracts online at very low commissions.
- Commission and fees: At a maximum of $0.59 per trade, Generic Trade offers some of the lowest commission fees of any futures brokers. By eliminating the need for middlemen, the broker prides themselves on transparency and keeps their prices lower than other futures brokers.