How to Trade Bond Futures
Bond futures are contracts for the delivery of a set amount of bonds at the termination of the contract. Treasury bond futures require the delivery of a $100,000 bond-per-futures contract. Futures also trade on the Barclays Capital Aggregate Bond Index. This is a cash settled contract with no delivery required. Bond futures trade profits from the changes in the current bond interest rates. Falling rates will cause bond values and futures to rise. Rising rates result in falling bond prices. Futures traders can trade rates moving in either direction.
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Instructions
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Open an account with a broker registered with the Commodities Futures Trading Commission (CFTC). Futures trading must be done with a CFTC-registered broker. The commodities broker will provide a choice of trading software and a practice trading account. Most commodity brokers require an initial deposit of $5,000 to $10,000.
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Download trading software from the broker's website and get it set up. Trading software has a very large number of options and tools to help the trader. The broker's representative can help you set up the program for trading bonds. Commodity brokers understand that they get new customers unfamiliar with futures trading and provide assistance and guidance to get started.
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Practice trading using a simulated money account. The practice trading will allow you to learn how to use the software and develop a trading strategy. The CME Barclays Capital U.S. Aggregate Bond Index Futures is a good bond futures contract to start trading with. The contract has a decent tick value and low margin requirements. Use the practice trading account until you are consistently profitable with your trading strategy.
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Start live trading with a single futures contract. The margin requirement for the Aggregate Bond Index Futures is $1,620 per contract. Futures can be either bought or sold to open. A bond future buy-in or long position will profit if bond interest rates fall. Initially selling or going short will profit if rates rise.
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Tips & Warnings
Keep a notebook account of all of your trades and strategy adjustments. This will help you improve your trading skills over time.
Successful traders practice until they are sure their strategy will work, then they start with contract trades and build a trading account slowly.
Bond futures trading is extremely risky and can result in a complete loss of your trading capital. Futures trading should only be done with money on which you can afford to take a 100 percent loss.
