Trade futures on Wealthsimple

Overview

Futures trading is an advanced feature on Wealthsimple that allows eligible clients to trade futures contracts directly within their individual margin accounts. This guide will help you understand what futures trading is, how it works, and what to consider before you start. Futures trading offers a way to diversify your portfolio and speculate on market movements beyond traditional stocks and options.

Here are some important considerations regarding futures trading:

• Futures trading is an advanced product intended for experienced investors who understand the high degree of risk involved.
• Futures trading is only offered in individual margin accounts.
• All futures contracts on Wealthsimple are cash-settled.

What is futures trading?

Futures trading on Wealthsimple allows you to agree to buy or sell a specific asset, like gold or the S&P 500, at a set price on a future date. A futures contract is a legally binding agreement to buy or sell an asset, such as a commodity or a financial index, at a predetermined price on a future date.

Futures trading on Wealthsimple includes:

• Access to popular futures markets, such as major stock indices (for example, the S&P 500), key commodities (for example, gold), and single stock futures on popular stocks.
• A clear interface showing real-time pricing, contract specifications, and margin requirements.
• The ability to open both long (buy) and short (sell) positions.

Futures trading vs. stock trading: Key differences

While trading futures feels similar to trading stocks (you still click Buy or Sell), the mechanics behind the scenes are different. Here are the five core differences:

1. What you're actually trading (asset vs. agreement)
   • Stocks: You're buying a piece of actual property (a share of a company).
   • Futures: You aren't buying an asset today. You're entering into a legally binding agreement to buy or sell an asset at a later date.
2. Buying power (purchase price vs. security deposit)
   • Stocks: If you buy $10,000 worth of stock, you must pay $10,000 (or borrow a portion of it using stock margin and pay interest).
   • Futures: Because it's just an agreement for the future, there's no "purchase price." To open a $250,000 futures contract, you don't pay $250,000, and you don't borrow money from Wealthsimple. You only need to have the flat-dollar margin requirement (for example, $15,000) in your account, which Wealthsimple simply "locks" as a good-faith security deposit while the trade is open.
3. Going short (borrowing shares vs. just selling)
   • Stocks: To bet against a stock, you have to find shares to borrow from the brokerage, pay borrowing fees, and sell them. It can be complicated and expensive.
   • Futures: Because there's no physical asset to borrow, going short is incredibly easy. You simply open a brand-new trade by clicking Sell. Your account will show a negative quantity (for example, -1 contract), and you just need the exact same security deposit as someone who clicked Buy.
4. Profits and losses (on paper vs. daily cash sweeps)
   • Stocks: If your stock goes down $500, your account value drops, but you haven't actually lost the money until you hit Sell. It's an "unrealized" paper loss.
   • Futures: Futures are marked-to-market every single day. If your contract loses $500 today, the exchange deducts $500 cash from your account at the end of the day. If it makes $500, they deposit $500 cash into your account. Your cash balance changes every single day based on performance.
5. Lifespan (forever vs. expiration)
   • Stocks: You can buy a stock and hold it in your portfolio for 50 years.
   • Futures: Every futures contract has an expiration date. You must either close the trade before it expires, or close it and open a new contract for a future month (a process called "rolling").

Important futures terminology

• Margin requirement: The amount of collateral required to hold a futures position. This collateral is captured as buying power (cash and margin). In futures, the margin requirement is simply a good-faith security deposit. It's a set dollar amount per contract (for example, $15,000), set by the exchange, which works out to a small percentage of the contract's total value. Wealthsimple locks this buying power amount in your account to prove you have enough money to cover any potential daily losses. When you close the trade, you get your deposit back (plus any profits made, or minus any losses taken).
• Tick size: The minimum allowable price movement or fluctuation for a specific futures contract. Different contracts (for example, Oil vs. S&P 500) have different tick sizes.
  • Example: If the tick size for a contract is 0.25, the price can only move in increments of 0.25 (for example, from 5,000.00 to 5,000.25 to 5,000.50). It can't trade at 5,000.10.
• Tick value: The actual monetary value (dollar amount) gained or lost per contract when the price of the asset moves by exactly one tick.
  • Example: If a contract's tick value is $12.50 and the price moves up one tick (from 5,000.00 to 5,000.25), you gain $12.50 per contract if you're long, or lose $12.50 per contract if you're short.
• Multiplier (contract value): A predetermined factor used to calculate the total cash value of a futures contract. Since you aren't just buying one "share," the contract's total value is determined by multiplying the current price of the futures contract by this multiplier.
  • Example: The multiplier for the E-mini S&P 500 is $50. If the S&P 500 index is trading at a price of 5,000, you multiply 5,000 by $50. The total value of the contract is $250,000.
• Leverage: Leverage is the ability to control a large amount of value with a very small deposit. Because futures use the deposit system, they're highly leveraged, meaning profits and losses happen very fast.
  • Example: You use a $15,000 margin deposit to control a $250,000 S&P 500 contract. If the $250,000 contract value drops by just 6%, the contract loses $15,000 in value. Your entire deposit is wiped out. This is why futures are high-risk.
• Trading hours: The specific times during which a futures contract can be bought or sold. Unlike regular stock markets, futures markets often trade nearly 24 hours a day, 5 days a week, with specific daily halts depending on the contract.
• Settlement type: Determines what happens upon the contract's expiration. Contracts are typically either cash-settled (the financial difference is paid or received in cash) or physically delivered (the actual physical commodity is exchanged). At Wealthsimple, all futures contracts are cash-settled.
• Last day to trade: The absolute final day a specific futures contract can be bought or sold before it expires and goes to settlement.
• Chicago Mercantile Exchange (CME): One of the largest global derivatives exchanges. The CME is the only exchange Wealthsimple currently supports.
• Previous settlement: The official closing price of the futures contract from the previous trading day. The exchange uses this price to calculate daily unrealized gains, losses, and margin requirements.
• Open interest: The total number of active, outstanding futures contracts that are currently held by market participants at the end of the day and haven't yet been closed out, exercised, or settled.

Supported futures contracts

Wealthsimple supports a range of futures contracts, including major equity indices (such as the S&P 500, Nasdaq-100, Dow Jones, and Russell 2000), energy (such as crude oil), metals (such as gold and silver), and single stock futures on popular stocks.

How to trade futures

Advanced charting

Advanced charting is available for futures contracts. You can search and view futures contracts from the advanced chart using the Trade Plus toggle on the home screen on the web.

Futures suitability

Open a short or long position

Close a position

The daily futures schedule (ET)

Unlike the stock market, which just closes at 4:00 pm and reopens the next morning, the futures market does a few different things in the late afternoon:

• The settlement pause at 4:15 pm (15 minutes): The market briefly pauses from 4:15 pm to 4:30 pm. This 4:15 pm mark is the "finish line" where the exchange officially records the Daily Settlement Price to calculate everyone's profits and losses for the day.
• Trading resumes at 4:30 pm (30 minutes): The market opens back up for 30 minutes.
• The market closes at 5:00 pm (1 hour): At 5:00 pm, the market officially closes for a 1-hour "Daily Maintenance" period. You can't trade during this hour.
• The market reopens at 6:00 pm (a "new" day begins): At 6:00 pm, trading resumes. However, in the futures world, 6:00 pm officially marks the start of the next trading day. For example, a trade placed at 6:30 pm on Monday is actually considered a Tuesday trade.

Frequently asked questions

Related articles

• Open a margin account
• Understanding margin calls
• Eligibility criteria for stocks, ETFs, and futures