How to Trade Treasury Futures

Treasury futures are one way traders can invest in treasury securities without risking large amounts of money. Treasury futures are derivatives of Treasury notes and bills, and they mirror the interest rate movements of the underlying securities. Treasury securities have fluctuating interest rates, which directly affect the amount of profit or loss an investor realizes when the trade is closed out.

Step 1

Select an online futures brokerage firm that offers Treasury futures trading and open an account. Although each broker sets the minimum amount needed to open an account, all firms must abide by the exchange’s margin requirements. You must deposit $1,500 to $3,000 to cover the initial margin plus deposit the maintenance margin of at least $1,500 to trade one Treasury futures contract. The amount required depends on the maturity date of the underlying Treasury securities.

Step 2

Speak to the broker assigned to your account about which trading platform to use. Open a demo account and download the trading platform. Take time to watch the video tutorials and learn to use the platform. Pay special attention to information about trading Treasury futures. Contact your broker if you have any questions.

Step 3

Practice trading Treasury futures on your demo account. Analyze each trade to see what you did right to make a profit or wrong if you incurred a loss. Keep trading until your wins outweigh your losses. Bad demo trades are part of the learning curve, but failed trades in your live account will quickly eat up your trading capital.

Step 4

Fund your live account and buy Treasury futures if you think interest rates are going up or sell them if you believe the interest rates will fall. Begin by trading just one futures contact to protect your capital. One futures contract controls $100,000 of Treasury securities and the profit or loss will be added to or deducted from your account daily. Have an exit strategy in place to take a profit or close out a loss should the trade move against you.

Items you will need

  • Online futures trading account

Tips

  • Keep a notebook of your demo and live account trades and use it as a learning tool to become a better trader.
  • Treasury futures contracts are available on short-term, medium-term and long-term Treasury securities, with each one carrying different maturity dates and interest rates.

Warnings

  • Be sure the brokerage firm you select is registered with the U.S. Commodities Futures Trading Commission and that its brokers are in good standing before opening an account.
  • Treasury futures are highly leveraged and traders can make or lose money quickly. The CFTC suggests you trade only with money you could afford to lose.

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