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Future Trading Strategies – High Risk, High Reward?

Futures contracts – or simply "futures" – are derivate contracts that allow traders to set a fixed price for an asset for a set amount of time. They give investors the opportunity to speculate on an asset's performance while also being used as a hedging mechanism to help prevent financial losses. Let's take a look at the nature of futures, some futures trading strategies, and how CARL employs futures trading.

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How Does Futures Trading Work?

A futures contract is always linked to an actual asset. It functions as an obligatory transaction at a predetermined date and is a derivate of the underlying asset. This means that there are two underlying principles that define the trade contract:

  • The buyer must buy the asset at the set date and price.
  • The seller must sell the asset at the set date and price.

One core goal of any broker that trades financial instruments such as futures contracts is risk mitigation. Both contract parties put up an initial sum called a "margin" that must be maintained over the futures contract's time period. Trading using futures goes back to the 17th century when traders sold contracts on tulips. This historic role model defined futures types for centuries, and even today, commodity futures, e.g., for crude oil, gold, silver, or corn, are an essential part of trade futures markets. Other common types are:

  • index futures
  • currency futures
  • interest rate futures
  • stock futures

Traders are allowed to individually set the parameters for a futures contract which is why some brokers are trading futures contracts for very exotic goods or commodities.

Let's look at an example of how options work: A broker on a trading platform negotiates a call option to buy a stock at a set strike price of $50. He can buy the said stock at the negotiated price for the next three months. If the stock price goes up to 75$, he can immediately pay his strike price and resell the stock on a trading platform to net a profit of $25. But crucially, if the price drops below the $50 strike price, the trader isn't obligated to buy.

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Options vs. Futures – What's the Difference?

A brokerage can use both instruments – options and trade futures – for speculating or hedging in order to yield financial gains. On a cursory look, both types have a lot in common as they are both derivates of an underlying asset. Derivative holders like brokers or brokerages don't actually own the asset, though. As a strategy, brokers can use both derivates in day trading to benefit from price fluctuation. But there is one key difference between trading futures and options:

Options give a broker the right to buy or sell a share at a set price at any given point in time. Futures traders are obliged to buy or sell shares at a specific date in the future.

Let's look at an example how options work: A broker on a trading platform negotiates a call option to buy a stock at a set strike price of $50. For the next three months, he can buy said stock at the negotiated price. If the stock price goes up to 75$, he can immediately pay his strike price and resell the stock on a trading platform to net a profit of $25. But crucially, if the price drops below the $50 strike price, the trader isn't obligated to buy.

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Two perspectives on futures trading

Futures traders usually belong to one of two categories: "hedgers" or "speculators". The former are traders who seek to maximize their assets' value while also reducing the potential loss that price changes can cause. The latter are those traders that are looking to profit from price changes. Both types operate in various investment areas, i.e., futures markets like the ICE, the Chicago Mercantile Exchange, or Eurex.

A professional futures market is usually registered with the CFTC – the Commodity Futures Trading Commission. This is the agency responsible for regulating futures markets in the U.S.

Speculators seek to make a profit off of a commodity's price increase. This is the case if two things happen: the commodity has gotten more valuable, and it is trading at a higher rate than the original futures price. The investor then unwinds or offsets the buy trade – before the trading future expires – at the current high price. The difference between the original and current price is the yielded profit.

Turning this principle on its head, speculators can also yield gains by betting on an asset dropping in value. To do this, they have to position themselves in an offsetting position. The contract then closes, and the net difference between the higher futures contract price and the lower current price turns into profit for the speculator. Both investment strategies are relatively risky, though, as both losses and gains can be amplified due to the derivate type's nature.

A strategy of speculating on margin requirements, i.e., margins themselves, comes attached with even greater risk. Potential losses can far exceed a retail investor's funds which is why non-professional speculators should shy away from these investments.

Trading futures contracts for hedging is another strategy. It's applied to guarantee a set price if an investor expects unfavorable price fluctuation. One historical example for this are corn farmers:

Historically, trading commodities like corn with futures was a viable way to guarantee a certain value for a set amount of crops. A farmer opens up a trading future to lock in money for his crops. He'd then be able to yield a gain trading his hedging future despite selling the real crops at a decreased value. The gain on the former offsets the loss of the latter – and the farmer still hits an acceptable price on the market for his crops.

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3 Easy Steps to Start Investing With CARL

Investing in quants is as easy as pie if you've got CARL on your side. Investors can set up an CARL account quickly and easily.

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Quickly and securely create your account, verify your investor status and become a member of our community.

Analyze Investments

Using the tools within the CARL app, determine which strategies at what allocations are right for your investment goals.

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Simply save your portfolio settings and on the next strategy funding cycle your investment will be live!

Futures Trading and CARL: Quant Hedge Funds and Day Trading Futures

Trading in futures means operating in a volatile environment. Due to the details of how futures contracts work, traders must be able to handle the risk of potentially losing more than they have paid in the initial margin. Also, the margin is ambiguous since it may amplify gains, but it can also magnify losses, especially when circumventing futures trading and speculating on margins itself.

Sophisticated quantitative models and strategies are CARL's specialty – eliminating human error from trading and strategy decisions.

Some futures investment strategies available at CARL venture into trading in futures markets to yield their 15%+ targeted returns. With their data-driven decision-making and highly technical analysisoverseen by key finance experts, our hedge fund trading strategies are an excellent fit to diversify your portfolio. Set up your account today and get a head-start with CARL!

A Perfect Match

Invest in Commodity Markets Futures and Forwards

An easier way to invest in commodities than going in alone if you’ve never invested in those market before. Invest with true market experts with years of commodities markets experience.


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A long/short market-neutral commodity strategy, Kilimanjaro aims to profit from dislocations in commodity markets. This strategy invests in highly liquid futures across the entire Commodity spectrum (Energy, Agriculture, Metals) including Crude Oil, Sugar, Copper and Gold. The strategy acts as a great diversification tool to a broader portfolio as it exhibits low correlation to other asset classes and strategies. Suggested pairings with other uncorrelated strategies, (eg trend equity, vol selling) or vanilla strategies (eg 60/40 or long only equity).

Strategy Details

Strategy facts

Provided by

Cazadores Investments Ltd.

Investment universe

Commodity markets futures and forwards

Key people

James Dedman, Joel Murang

IRA EligibleLong/ShortFuturesAverage Holding Period: 10 - 30 daysCapital Appreciation


Opportunity now closed

Olympus employs three fully automated and complementary systems. One profits from extreme (tail) movements in the US equity index, another uses predicted changes in implied volatility of the market to trade the VIX futures algorithmically, and also a hybrid that aims to be volatility-neutral.

Strategy Details

Strategy facts

Provided by

QTS Capital Management, LLC

Investment universe

US Futures

Key people

Dr. Ernest Chan, Dr. Roger Hunter

IRA EligibleMomentumFuturesAverage Holding Period: 1-10 DaysCapital Preservation


Opportunity now closed

A diversified, systematic multi-strategy vehicle, which aims to generate long-term absolute returns by creating layers of statistical agents across asset classes through different signals, universes and frequencies. The investment universe is composed of global liquid futures instruments and global large cap equities. Its philosophy consists of using technology and data to find patterns in the dispersion between all the securities in a universe.

Strategy Details

Strategy facts

Provided by

RAM Active Investments S.A.

Investment universe

World’s Most Liquid Futures and Developed Equities

Key people

Philippe Huber & Tony Guida

Long/ShortStocksFuturesAverage Holding Period: 1-10 DaysCapital Growth

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