Trading Futures + ETFs

“I’m a futures trader, can I trade ETFs?”

I get this question all the time.

Here’s the quick answer…


Now you might be thinking, “Okay Ragh great… so how?”

Trading Futures Through ETFs:

You can trade specific futures markets through ETFs. The first two that are the most popular and come to mind would be the GLD ETF and TLT (the bond ETF). Both of these ETFs are very liquid, meaning there’s a lot of volume traded in each of these ETFs.

The GLD:

The GLD is known as the SPDR gold trust and in this particular ETF, the breakdown of the assets is basically gold. That’s what’s within it. You have physical gold as 100% of the ETF. If a futures trader wants to own gold, they can simply buy GLD, which actually brings up some noteworthy points. There’s an advantage in many ways to owning the GLD ETF versus owning or trading the GC futures.

What’re those advantages?

For starters, you don’t have to worry about rollover of contract expiration on the GLD. It’s simple — once you own it, if you’ve bought it, it’s yours. You don’t have to exit it because the contract isn’t going to expire. There are also options on the GLD. Now you probably know there are options on the GC futures as well, but the options on the GLD gives you more choice for expiration dates. Plus, they’re more liquid than their GC futures options counterparts. There are sometimes advantages to looking at the commodity ETF as opposed to the commodity future.

The TLT:

The other example I mentioned was the TLT. The TLT is another ETF.

In this case, it represents the 20 year treasury bond or the 20 plus year treasury bond. It’s going to mimic more the 30 year long bond, and this is full of nothing but United States treasury bonds. What you’re able to get exposure to with the TLT ETF, in lieu of trading the Zed B 30 year futures contract, is if you want to own bonds long term, you can simply buy the TLT and not ever have to worry about expiration rollover and the headache of rolling one contract into the next.

If you want to trade options on the TLT, once again, you’ll get more selection of expiration dates because options on stocks and ETFs have both quarterly and weekly expirations. This is unlike the futures contracts, which will only have choices for the month of the contract for the underlying future. 

There are a number of these commodity ETFs beyond the mentioned gold and the 20 plus year bond.

Other Options:

Some other commodities to look at would be the UNG natural gas ETF, the USO crude oil ETF, and the UG unleaded gas ETF. There are many choices for traders who want exposure to the commodities markets without necessarily having to go into futures. And in many cases, having a better options chain, if they choose to trade options on those commodities.

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