What Can You Trade with Futures?

Futures contracts aren't just about trading stocks—they offer access to a vast and diverse range of markets, including stock indices (like the S&P 500), commodities (like gold, oil, corn, and coffee), currencies (like the Euro or Japanese Yen), interest rates, and even cryptocurrencies. This broad selection allows traders to diversify their strategies, capitalize on global economic trends, and find opportunities that might be unavailable in the traditional stock market. Understanding what you can trade with futures is the first step toward unlocking a world of potential beyond simple stock picking.

Importance for Trading

Knowing what you can trade with futures is valuable because:

• It allows you to diversify your trading portfolio beyond stocks
• It provides access to markets that move independently of the stock market
• It enables you to profit from global economic trends and events
• It opens up unique trading opportunities based on supply and demand dynamics
• It helps you hedge against inflation or currency fluctuations
• It gives you a broader perspective on the global financial system

"Limiting yourself to trading only stocks is like being a chef who only cooks with chicken. There's a whole world of flavors and ingredients out there waiting to be explored."

The International Food Importer Story

Meet Isabella, who runs a successful business importing specialty foods from around the world. Her experiences navigating global markets and managing price fluctuations perfectly illustrate the diverse range of assets available for futures trading.

Trading Stock Indices: The Global Market View

Isabella starts her day by reviewing news from around the world that might affect her business. She pays particular attention to the performance of major stock indices in different regions.

"I don't trade stocks directly, but I find it helpful to monitor global stock indices," Isabella explains to her new assistant, David. "They give me a sense of the overall economic climate in different parts of the world, which can influence consumer demand for my products."

Isabella points to a chart showing the performance of the S&P 500 (U.S. stocks), the Euro Stoxx 50 (European stocks), and the Nikkei 225 (Japanese stocks).

"If I see the S&P 500 trending upward, it suggests that U.S. consumers are feeling confident and are more likely to buy my imported delicacies," Isabella notes. "If I see the Nikkei 225 declining, it might signal economic weakness in Japan, which could affect my ability to source certain ingredients from that region."

"Trading stock index futures is like taking the pulse of the global economy—it gives you a broad overview of market sentiment and potential opportunities across different regions."

This illustrates how traders can use stock index futures to gain exposure to broad market movements. Instead of trading individual stocks, you can trade futures contracts based on indices like the S&P 500 (SPY), Nasdaq 100 (QQQ), or Dow Jones Industrial Average (DIA). This allows you to profit from overall market trends or hedge against portfolio risk without having to pick individual winners and losers.

Trading Commodities: The Raw Materials of Life

Isabella's business relies on importing a variety of commodities, including coffee beans, olive oil, sugar, and spices. She closely monitors the prices of these raw materials to manage her costs and set her retail prices.

"Commodity prices are a constant concern for me," Isabella tells David. "A sudden spike in the price of coffee beans or olive oil can significantly impact my profitability. That's why I need to understand the factors that drive these markets."

Isabella shows David her spreadsheet tracking the prices of various commodities:

• Coffee (Arabica): Affected by weather patterns in Brazil and Colombia
• Olive Oil: Influenced by harvest yields in the Mediterranean region
• Sugar: Driven by global demand and production in countries like India and Thailand
• Spices (Cinnamon, Cloves): Subject to geopolitical events and trade agreements

"Each commodity has its own unique set of supply and demand dynamics," Isabella explains. "Understanding these factors is essential for managing my business effectively."

"Trading commodity futures is like betting on the weather—you're speculating on the future prices of essential raw materials based on factors like supply, demand, and global events."

This illustrates how traders can use commodity futures to profit from price movements in raw materials. Instead of trading stocks, you can trade futures contracts based on commodities like crude oil (CL), gold (GC), silver (SI), corn (ZC), soybeans (ZS), or wheat (ZW). These markets are often driven by different factors than the stock market, providing opportunities for diversification and unique trading strategies.

Trading Currencies: The Global Exchange Rate Game

Isabella imports products from various countries, which means she constantly deals with fluctuating exchange rates.

"Currency fluctuations can significantly impact my profit margins," Isabella tells David. "If the Euro strengthens against the U.S. dollar, my costs for importing goods from Europe increase. If the Japanese Yen weakens, my products become more competitive in the U.S. market."

Isabella shows David her currency tracking chart:

• EUR/USD (Euro vs. US Dollar): Influenced by interest rate differentials and economic data in Europe and the US
• USD/JPY (US Dollar vs. Japanese Yen): Affected by Japanese monetary policy and global risk sentiment
• GBP/USD (British Pound vs. US Dollar): Driven by Brexit developments and UK economic performance

"I don't actively trade currencies, but I need to be aware of these exchange rates to manage my business effectively," Isabella explains. "A sudden shift in currency values can make or break a deal."

"Trading currency futures is like being an international traveler who profits from knowing which currencies are strong and which are weak. You're betting on the relative strength of different economies."

This illustrates how traders can use currency futures to profit from exchange rate movements. Instead of trading stocks, you can trade futures contracts based on currency pairs like EUR/USD, USD/JPY, or GBP/USD. These markets are driven by global economic factors, interest rate differentials, and geopolitical events, providing opportunities for traders who understand international finance.

Trading Interest Rates: The Cost of Money

Isabella also monitors interest rate trends, as they affect her borrowing costs and the overall economic environment.

"Interest rates are like the cost of money," Isabella explains to David. "They influence everything from my loan payments to consumer spending habits. When interest rates rise, it becomes more expensive for businesses and individuals to borrow money, which can slow down economic growth."

Isabella shows David her chart tracking interest rate futures:

• 10-Year Treasury Note (ZN): Reflects expectations for U.S. interest rates
• Eurodollar (GE): Reflects expectations for short-term interest rates

"I don't trade these directly, but I need to understand them to make informed business decisions," Isabella notes. "If I see interest rates rising, I might postpone taking out a new loan or adjust my pricing strategy to account for higher borrowing costs."

"Trading interest rate futures is like betting on the future cost of borrowing money. You're speculating on the direction of interest rates based on economic data and central bank policies."

This illustrates how traders can use interest rate futures to profit from changes in borrowing costs. Instead of trading stocks, you can trade futures contracts based on U.S. Treasury notes (ZN), Eurodollars (GE), or other interest rate benchmarks. These markets are driven by economic data, Federal Reserve policy, and global financial conditions, providing opportunities for traders who understand fixed income markets.

Using This Knowledge in Real-Time Trading

How to Diversify Your Watchlist

Real-time example: You're building a 0DTE options watchlist and want to include more than just stocks.

How to diversify your watchlist:

1. Include a stock index: SPY (S&P 500 ETF) or QQQ (Nasdaq 100 ETF) for broad market exposure
2. Add a commodity: Crude oil (CL) or gold (GC) for inflation hedging or commodity-specific plays
3. Consider a currency pair: EUR/USD or USD/JPY for exposure to global economic trends
4. Select a few individual stocks: Choose 2-3 stocks with upcoming earnings or news catalysts

"A diversified watchlist is like a well-balanced diet—it provides exposure to different nutrients (market sectors) to ensure your portfolio is healthy and resilient."

Action plan:

• Start with SPY or QQQ for broad market exposure
• Add crude oil futures (CL) if you have a view on energy prices
• Consider EUR/USD futures if you follow global economic trends
• Select 2-3 individual stocks with upcoming earnings or news events
• Ensure each security has liquid options with tight bid-ask spreads

How to Profit from Global Events

Real-time example: You're following news about a potential trade war between the U.S. and China.

How to trade global events:

1. Assess the impact: How will this event affect different markets?
2. Consider currency futures: Trade EUR/USD or USD/JPY based on expected currency movements
3. Look at commodity futures: Trade gold (GC) as a safe-haven asset or agricultural futures based on trade impacts
4. Monitor stock index futures: Trade SPY or QQQ based on overall market sentiment

"Global events are like ripples in a pond—they create waves that spread across different markets. Understanding these connections helps you identify trading opportunities beyond just stocks."

Action plan:

• If you believe a trade war will weaken the U.S. dollar, consider buying EUR/USD futures
• If you expect increased uncertainty, consider buying gold futures as a safe haven
• If you think the trade war will hurt U.S. tech companies, consider shorting QQQ futures
• Always manage your risk and use stop-loss orders to protect your capital

How to Hedge Your Portfolio

Real-time example: You have a long-term stock portfolio and are concerned about a potential market correction.

How to use futures for hedging:

1. Calculate your portfolio beta: Determine how sensitive your portfolio is to overall market movements
2. Sell stock index futures: Short SPY or QQQ futures to offset potential losses in your stock portfolio
3. Adjust position size: Use a hedge ratio to determine how many futures contracts to sell
4. Monitor your hedge: Rebalance your position as market conditions change

"Hedging with futures is like buying insurance for your house—you hope you never need it, but you're glad you have it when a storm hits."

Action plan:

• Calculate your portfolio's beta to SPY (a measure of how much your portfolio tends to move relative to the S&P 500)
• If your portfolio has a beta of 1.2, it's more volatile than the S&P 500
• Sell enough SPY futures contracts to offset the potential losses in your portfolio
• For example, if you have a $100,000 portfolio and SPY is at $450, you might sell 2 SPY futures contracts to hedge against a 10% decline
• Remember that hedging reduces potential profits as well as potential losses

How to Adapt Your Strategy to Different Markets

Real-time example: You're experienced at trading stock index futures but want to start trading crude oil futures.

How to adjust your approach:

1. Understand the fundamentals: Learn about the oil market, supply and demand factors, and geopolitical influences
2. Adjust your technical analysis: Different indicators may work better for different markets
3. Consider volatility patterns: Oil can be more volatile than stock indices
4. Account for contract specifications: Know the tick size, point value, and margin requirements
5. Start with smaller positions: Give yourself time to learn the nuances of the new market

"Trading different futures markets is like cooking different cuisines—the basic skills are the same, but you need to learn the specific ingredients, techniques, and flavors of each one."

Action plan:

• Research the crude oil market and understand the factors that drive its price
• Review technical analysis techniques that are commonly used for oil futures
• Adjust your risk management parameters to account for oil's higher volatility
• Start with smaller positions than you typically use for stock index futures
• Monitor your results closely and adapt your strategy as you gain experience

Practical Tips for Exploring Different Futures Markets

1. Start with a demo account to practice trading different futures products without risking real money
2. Focus on a few markets rather than trying to trade everything at once
3. Understand the contract specifications for each futures product you trade
4. Monitor economic and geopolitical events that can impact futures prices
5. Use technical analysis to identify potential entry and exit points

Remember, futures trading offers a vast and diverse range of opportunities beyond just stocks. As legendary trader Richard Dennis said, "I always say that you could publish rules in a newspaper and no one would follow them. The key is consistency and discipline." By understanding the different types of futures contracts available, developing a sound trading strategy, and managing your risk effectively, you can increase your chances of success in this exciting and dynamic market.