How to day trade futures contracts in the UK

Posted On January 20, 2023

Day trading futures contracts have become increasingly popular among investors looking for a more aggressive way to get involved in the markets. Futures contracts, agreements between parties to buy or sell assets at a specific date and price, can provide quick gains and losses depending on market movements. Despite its higher risk profile, day trading futures is attractive due to their potential for high returns; however, it’s essential to understand the complexities of UK law and regulations before getting started.

If you are eager to start trading futures, you can open an account with Saxo Capital Markets.

Understand your risk tolerance

The first step to successful day trading is understanding your risk tolerance level and developing a sound strategy that aligns with your goals. It’s important to remember that futures contracts can be highly volatile, and losses can accrue quickly. Hence, it is essential to ensure you are comfortable with the risk involved before beginning.

Research the available markets

Day traders should research all available markets before deciding where to focus. Each market has different laws, regulations and costs associated with trading in them, as well as varying levels of liquidity and price movements that affect profits.

Research brokers

Before signing up for an account, it’s essential to research all potential brokers to ensure they are regulated by the UK Financial Conduct Authority (FCA) and offer competitive fees and commissions. Additionally, researching the trading platforms available and their features, such as charting tools, order types and customer service, can ensure a smoother overall experience.

Have an exit strategy

It is essential to have an exit strategy in mind when day trading futures contracts. It helps to mitigate losses by determining the point at which you will cut your losses if the market moves against you. It could be setting a stop-loss level or taking profits once they reach a certain level.

Understand margin requirements

Before entering any trades, it’s essential to understand the margin requirements of each broker and how they apply to different markets or products traded. Margin requirements are based on the size of the position being taken, so understanding these can help to manage risk and prevent losses.

Monitor the market

Day traders should regularly monitor the markets, as news events or sudden price movements could result in quick gains or losses. Keeping up with the latest financial news and understanding how specific assets will be affected can help day traders make more informed decisions about when to enter and exit trades.

Use stop-loss orders

Stop-loss orders are a great way to protect against unforeseen losses if the markets instantly move against your position. This type of order instructs a broker to automatically close out a trade once it reaches a certain level of loss, helping to minimise potential damages caused by sudden market movements.

Utilise leverage

Leverage is used to increase the size of a position, meaning that traders can make more significant profits or losses with a smaller capital outlay. However, leverage also results in higher risks, so it’s essential to understand how much risk you are taking on before using this tool.

Manage your emotions

When day trading futures contracts, the most important thing is to manage your emotions and avoid making rash decisions based on fear or greed. Keeping an even head and sticking to your plan will help ensure consistent returns in the long run.

Have realistic expectations

It’s essential to have realistic expectations when day trading futures contracts. You will unlikely become a millionaire overnight; success will take time, patience, and dedication.

Futures trading risks

Though trading futures may be lucrative, it is essential to understand that it carries a high degree of risk. It includes the possibility of significant losses if the market moves against you and the potential for fraud or manipulation by an unscrupulous broker. Before engaging in this type of trading, it is essential to fully understand the risks.

Market volatility

The markets can be highly volatile, making them difficult to predict and increasing the risk for traders.

Counterparty risk

There is always the risk that your counterparty (the buyer or seller) will not fulfil their obligations when trading futures contracts in the UK.