Futures trading is a popular way of investing for many people in the UK. It involves speculating on the future price of an asset in the futures market. There are a wide range of strategies traders can employ when trading futures, with different approaches to choosing and timing trades and different levels of risk associated with each strategy. This article will provide an overview of the UK’s most popular futures trading strategies and how they work.
Scalping
Scalping is an ultra-short-term trading strategy that involves taking advantage of small price movements during the day by entering and exiting trades quickly. Scalpers typically look for stocks or assets with high liquidity, allowing them to make rapid trades without affecting the market too much. In addition, scalpers need to be highly disciplined with their risk management, as losses can quickly mount up if trades don’t go their way.
Day trading
Day trading is another short-term strategy that involves taking advantage of daily price movements. Day traders usually focus on one or two markets and watch these markets throughout the day, making decisions based on market activity, news, and economic reports. The goal of day trading is to capitalise on small price moves within a single trading session.
Swing trading
Swing trading is an investing strategy that looks for significant changes in the direction of a stock or asset over time, typically holding its position for several days or weeks. Swing traders attempt to identify stocks or assets trending strongly and hold them until they believe it has reached their peak before selling them off and moving on to another trade.
Position trading
Position trading is a longer-term strategy that focuses on the overall trend of a stock or asset over time rather than taking advantage of its short-term movements. Position traders typically look for stocks or assets trending strongly and hold them for several weeks or months. This strategy requires an in-depth knowledge of market analysis techniques, such as fundamental and technical analysis, so that investors can make informed decisions about their investments.
Momentum trading
Momentum trading is another popular strategy used by futures traders in the UK. Momentum traders focus on stocks or assets with high levels of volatility, looking to take advantage of rapid price changes within a short period. Momentum traders typically look for strong trends in the market and look to enter or exit positions based on these trends.
Contrarian investing
Contrarian investing is an investment strategy involving taking a position against the prevailing market trend. When the market is bullish, contrarians will take a bearish stance, and vice versa when the markets are bearish. Contrarian investors look for oversold or undervalued stocks or assets and attempt to capitalise on this mispricing.
Options trading
Options are derivatives that give investors the right, but not the obligation, to buy or sell an asset at a predetermined price. Options traders use options to speculate on future price movements of an asset, as well as hedge their existing positions. This strategy can be risky, as there is the potential for losses to exceed the initial investment if the price of the underlying asset moves in the opposite direction.
Spread trading
Spread trading involves taking a position on both sides of a futures contract simultaneously to profit from changes in market volatility. Spread traders typically take advantage of small price movements between different markets and look to exploit any mispricing between them. The risk with this strategy is that losses can quickly mount up if you’re not careful.
Hedging
Hedging is a risk management technique that involves taking an offsetting position to reduce the potential for loss arising from an existing position. Hedging strategies involve buying and selling options or futures contracts to protect against adverse price movements. It is a popular strategy amongst investors looking to reduce their exposure to risk while still participating in the markets.
Arbitrage
Arbitrage is a trading strategy involving taking advantage of market mispricing by buying and selling identical assets simultaneously to profit from the price difference. This strategy can be challenging to master, as it requires rapid decision-making and an ability to spot opportunities quickly. However, when done successfully, it can offer significant returns.
