Futures trading guide for Canadians

Futures trading Canada has become quite popular in recent years as many Canadians warm up to the idea of investing in financial securities. The internet has also made it easy for investors to access a large pool of assets, unlike in the past when investors were limited to a small pool offered by traditional stock brokers.

For those looking to secure their financial futures, investing in futures among a long list of assets is the way to go.

In this article, we want to review futures trading Canada to help you make the right decisions moving forward.

Best futures trading brokers in Canada

Broker
Rating
Regulated
Bonus
Min. Deposit
Max. Leverage
1.
FXCC

FSC

up to 100% bonus

USD 100

1:500

2.
Easymarkets

FSA, CySec, BVI, ASIC

up to 50% bonus

USD 100

1:400

3.
Avatrade

IIROC, ASIC, BVI, CBI, JFSA, ADGM FRSA

up to $2000 bonus

USD 100

1:400

4.
Fusion Markets Canada

ASIC, VFSC

N/A

USD 100

1:500

5.
LegacyFX

CySEC, NBRB, FCA, VFSC

N/A

USD 250

1:500

6.
Blackbull Markets

ASIC, VFSC

N/A

USD 100

1:500

7.
Forex.com

IIROC, ASIC, FCA, JFSA, NFA, CFTC, CIMA

up to 20%

USD 50

1:500

8.
Fpmarkets

CySEC, ASIC

N/A

USD 100

1:500

9.
Fortrade

IIROC, FCA

up to 20%

USD 100

1:100

10.
FXChoice

FSC

up to 15%

USD 100

1:200

Futures trading Canada has become quite popular in recent years as many Canadians warm up to the idea of investing in financial securities. The internet has also made it easy for investors to access a large pool of assets, unlike in the past when investors were limited to a small pool offered by traditional stock brokers.

For those looking to secure their financial futures, investing in futures among a long list of assets is the way to go.

In this article, we want to review futures trading Canada to help you make the right decisions moving forward.

What are futures?

Futures are financial contracts that are also known as derivatives. These contracts include clauses that obligate the parties involved to sell it by an asset at an agreed price at a future date. In future contracts, the buyer must buy the asset at the agreed price, while the seller must also sell at the agreed price regardless of the current market trend.

For instance, if Party A and B enter a futures agreement to trade a metal asset for $50 for 10 units priced at $5 per unit, the seller must sell and the buyer must buy the agreed price regardless of the asset’s price rises or falls.

Underlying assets may be physical commodities like gold, silver, oil, diamond, or any other tangible asset of value. They can also be financial securities like stocks. Furthermore, the contract must contain vital details like the number of units, price, and other important information. One reason futures contracts have become valuable tradable assets is that they are used to hedge against risks or price volatility.

The dynamics of futures trading Canada

Futures trading Canada is similar to futures trading in any other country. The introduction of the internet has made it one of the most tradeable types of assets today. Futures are called futures contracts because they are actually agreements between a buyer and a seller, but how does it work?

The contract allows traders (buyers and sellers) to lock down the price of an underlying asset, so the prevailing price as of the day of execution does not affect the existing contract. You should also know that futures contracts are not infinite but have an expiry date with their upfront prices.

Most contracts have their expiry dates in months, not days. This is why many of them expire at the beginning or end of a month.

Also, note that the term futures can be used to represent any asset to be traded in future at a predetermined price. Common examples of futures assets are

  • Commodities like natural gas, corn, oil or crude oil
  • Currencies like the Canadian dollar, US dollar, Euro, Pounds Sterling
  • Precious metals like gold or silver
  • Treasury bills issued by Central banks

All these can represent futures contracts if a contract between the parties involved stipulates a buy and sell date at an agreed price.

The difference between futures and options

If you want to enter into futures trading Canada, you should know the distinction between futures and options. Despite their similarities, they are different in unique ways.

An option contract gives the holder the right to buy or sell an asset before the contract expires however it does not give them the obligation to do so. American options are based on rights, not obligations, but for European options, the holder is obligated to buy or sell it after it expires but not before.

Futures, on the other hand, are different. The buyer is obligated to buy or sell the underlying asset before the expiration of the contract at any time. Both options and futures give investors the benefit of holding a leverage position before the contract expires.

Pros and Cons of Futures Trading Canada

Before you make the decision to engage in Futures trading Canada, you need to know the pros and cons.

Pros of futures trading

Market speculation: Futures can be used to speculate the price direction of an asset ahead of time. If you can speculate prices with a low margin of error, you will be in a better place to earn income more often than not.

Hedge against risk: Futures are effective trading tools to hedge an asset against price drops. If you expect serious price swings in a volatile market, you can use a futures contract to reduce the possibility of sustaining losses. This will ensure that you don’t sustain too many losses or any at all if the price falls below the current value at the time you entered the contract.

Fraction amount: Unlike other types of contracts where you have to deposit the full amount to activate the contract, futures contracts are not like that. You only need to deposit a fraction of the total amount and pay the rest later at the contract expiration.

Cons of futures trading

Risk of loss: Investors who enter into a futures contract risk losing more money than they invested in the beginning, especially if they use high leverage. The potential for losses is high in a highly volatile market. This is why futures trading is not ideal for beginners but experienced professionals.

Miss profit positive: On one hand, a futures contract can hedge against risk, but on the flip side, it can cause investors to miss out on good profit if price movement goes in their favor.

High gains and losses: Just as it is possible to earn big gains if the price moves in your favor, so is it possible for the price to go against you, thereby sustaining serious losses. Futures trading Canada is a double-edged sword.

Futures trading Canada can be lucrative, but so are its risks. If you must enter into such contracts, ensure you have a clear understanding of the market, so you don’t suffer significant losses.

Futures Trading Canada FAQs

Is it advisable to trade futures as a beginner?

No, it is not. It is best to get sufficient experience before dabbling into it.

Where can I trade futures?

You can trade futures on online trading broker platforms.

How much is the service charge per futures contract I enter?

That depends on the broker you are trading with.

Are futures and futures contracts the same thing?

Yes, they mean the same thing.