Get Started Trading Derivatives

What are Derivatives?

Derivatives are contracts that derive their value from another market or underlying asset. The value of a derivative comes from movement, or a lack thereof, in the underlying market in which it is associated. Futures and options are two commonly traded derivatives, and, for example, an increase in the price of the underlying market would likely cause its futures to rise, call options to rise, and put options to fall.

What are Futures?

A future is an agreement between two parties to buy or sell an asset at a specified quantity for a predetermined price on a certain date in the future. Futures give their buyers and sellers bullish and bearish exposure, respectively, to assets like stock indexes and commodities in a direct, cost efficient way.

Want to learn more about futures? Check out Futures Trading for Beginners.

What are Options?

An option is a contract through which one party grants to another the right, but not the obligation, to buy or sell an asset at a specified price within a defined time period. Depending on whether they are call options or put options, these contracts allow their buyers to profit from either upward or downward movement in an underlying market.

Want to learn more about options? Check out Options Trading for Beginners.

Types of Derivatives Markets

Traditionally, futures contracts have been exchanged based on commodities such as agricultural products, metals, crude oil, currency, interest rates, and stock indexes. Over time, futures have evolved to include innovative new markets like cryptocurrency and cannabis. Traders value futures for the ease of access they give to hard-to-reach assets and lesser capital consumption that they require relative to shares of stock or ETFs.

The Small Exchange® suite of futures markets combine all the advantages and opportunities of traditional futures with a small, standard, and simple structure designed for all traders. You can access stocks, bonds, commodities, cryptocurrencies, and other asset classes in a Small futures product that looks and feels like 100 shares of stock but can be more efficient with your capital and easier to access.

The Small Exchange also offers options on some of its futures markets. Small options on futures give even greater access to markets by letting traders further small-ify position sizes.

Step-by-Step Guide to Making Your First Derivatives Trade

To access Small Exchange futures, you will need a futures trading account, a process similar to that of accessing options and stocks. Choose a broker that fits your investing needs.  While reviewing firms, some items to consider: Does the firm offer easy-to-use technology (trading platform and application)? Are the commissions and fees competitive? Does the firm offer the markets you would like to trade? 

After finding a broker that works for you, opening and funding an account is next. For reference, here’s a list of all brokers offering Small Exchange futures.

After opening an account at one of our participating brokers, ensure you have access to Small Exchange markets by contacting your broker’s customer support to enable your account for futures. This can often be done in the account opening process as well.

Once your account is open with futures enabled and funded, you’re ready to start trading the Smalls! Simply search the symbol for the market you wish to trade, and send a buy or sell order following your opinion of the market. Trading platforms may use different symbols than the exchange, so be sure to use the symbology specific to your broker.

How Futures Compare to Stock and Options

Futures are known for their cheap capital requirements and their ease of access to both buying and selling several assets relative to stock. This can make futures products a primary vehicle for short-term speculation, or day trading. Compared to traditional futures, Small futures can be less intimidating for those new to investing, given their small size and simple structure. 

Those familiar with trading stock can think of buying or selling Small futures the same as buying or selling 100 shares but for relatively less capital and a more diverse stretch of assets.

Those knowledgeable with options trading might liken Small futures to 100 deltas that do not rise or fall with any Greeks. Buying a futures market is like buying a call without the premium while selling futures can be like buying a put without the premium.

Build Your Knowledge with Futures Trading Education

Need a succinct guide to getting started with futures? Download our Beginner’s Guide to Futures!

Have more questions about derivatives and how they work? Check out our Futures Trading for Beginners and Options Trading for Beginners guides for more information.

Looking for a more visual approach to learning futures? Peruse our YouTube Channel including hundreds of videos ranging from basic information to advanced strategy, and don’t forget to subscribe!

Find even more futures education from us and our participating brokers: