How to Trade Stock Futures (5 Steps)

Learn the mechanics of how to trade stock futures. Stock futures are traded as standardized contracts of 100 shares. They are issued for a specified time period and expire on the third Friday of their final month. At that point they must be settled. This means you must buy (or sell) the actual shares unless you have an offsetting option contract (see Step 5). The attraction of stock futures lies in the fact that they can be traded on margin, allowing investors to leverage trades and increase potential profits.
Open a margin account with a brokerage firm. Trading accounts with margin privileges are similar to regular (cash) brokerage accounts, except that you are allowed to borrow money or stock from the broker. Because you buy a futures contract instead of the stock, there are no interest charges. However, this is considered a margin transaction because your potential liability is greater than the money you put up as a margin requirement. A margin account typically requires a $2,000 minimum balance, although for day traders this may be as high as $25,000.
Place an order to for a call (buy) or put (sell) futures contract with your broker. SEC regulations require a 20 percent margin. For example, if you purchase a contract for a stock selling at $25 a share, you must put up $5 a share or $500. If the stock goes up by $5 a share you make $500---a 100 percent profit, instead of the 20 percent you would make by buying the stock itself.
Keep up with daily fluctuations in the market price of the stock. The risk when you trade stock futures is as great as the potential profit. If the stock falls in price (or rises for a put futures contract) your investment decreases quickly and you will get a margin call. For example (using the example from step 3), if the stock falls from $25 to $23 a share, your margin falls to $3 a share, or 13 percent of the share price. You must then add more funds or the broker has to close out the account. Since small changes in price have such a large effect, you need to monitor the stock on a daily basis, if not more often.
Close out the transaction when you are ready. Very few stock futures contracts are actually exercised (that is, the underlying shares purchased and delivered). Instead, trades are normally settled by purchasing a second futures contract of the opposite type (a put if you are holding a call and vice versa). The two contracts simply cancel each other out at expiration.

How to Start a Stock Brokerage

Obtain sponsorship to take your Series 7 exam. You will need sponsorship from a Financial Industry Regulatory Authority (FINRA) member firm or from a self-regulatory organization (SRO). This often comes as a result of employment as a stockbroker with a licensed brokerage.
Pass the Series 7 exam, also known as the General Securities Registered Representative Examination. This test is administered by the NASD (National Association of Securities Dealers). You also need to obtain your Series 63 license if you have not already done so, as well as the Series 24, which permits you to run your own office.
Write a business plan outlining how you will run your stock brokerage. You need to make sure your potential investors believe you have a sound vision for your stock brokerage firm. Include information such as expected expenses, your marketing plan, employee growth goals, and targeted markets.
Present your business plan to potential investors. If you worked in another stock brokerage, you might be able to meet with some of the investors from that company. Tap into your social and business network for other investors. Meet with banks to obtain a loan if you can't get enough investors on board.
Obtain a business license, as well as any required permits for doing business in your area, by filling out all the necessary paperwork through the Secretary of State's office. You also must register your firm with the National Association Of Securities Dealers (NASD).
Hire a securities lawyer and consult with him to make sure you've obtained all necessary paperwork and that everything is up to date. Having the legally required licenses and permits and to start a stock brokerage firm is of utmost importance and can get complicated depending the state you're in.
Hire a fully licensed compliance officer. Ensure that your head compliance officer has passed the Series 14 exam.
Hire employees to work in your stock brokerage. You'll want to interview many candidates and make sure they have experience and education to work for you in the capacity you require. You will mostly need stockbrokers and may later need to branch out and hire secretaries and human resource workers. Stockbrokers must be properly licensed. Ask to see documentation of this licensing before hiring anyone.