Last Updated on May 26, 2023
Cash brokerage accounts require all trades have to be done with funds that are available at the time of the transaction. Many brokers go a step further and require that you have the cash in your account when you execute the trade.
Some brokerages allow margin accounts to borrow up to 50% of the purchase price for investments.
Futures
Futures trading requires the use of margin, so you typically can’t trade futures in a cash account.
Futures and options trading are two ways to trade in the commodities market.
Futures are a type of derivative contract agreement to buy or sell a specific commodity asset or security at a set future date for a set price. Futures contracts, or simply “futures,” are traded on futures exchanges like the CME Group and require a brokerage account that’s approved to trade futures.
Futures contracts are standardized agreements that can be traded on an exchange such as the NYSE or NASDAQ or the BSE or NSE. Options can be exercised at any time before they expire, while futures contracts only allow the trading of the underlying asset on the date specified in the contract.
Futures and options positions may be traded and closed ahead of expiration, but the parties to the futures contracts for commodities are typically obligated to make and accept deliveries on the settlement date. Futures options give the right to buy or sell the futures contract without that obligation.
The trade in futures takes place on the stock exchange, while the options trade takes place both on and off the exchanges.
Options
Options expiration refers to the last day that derivative contracts, such as options or futures, are valid. The expiration date is the last day on which the holder of the option may exercise it according to its terms.
Derivatives
Derivatives are usually leveraged instruments, which increases their potential risks and rewards. Common derivatives include futures contracts, forwards, options, and swaps.
Typically, derivatives are considered a form of advanced investing. The most common underlying assets for derivatives are stocks, bonds, commodities, currencies, interest rates, and market indexes.