Title: WHAT IS FUTURES MARKET? HOW TO TRADE FUTURES?
1WHAT IS FUTURES MARKET? HOW TO TRADE FUTURES?
In this article, we are going to the futures
market. The futures market is the fairer market
compared to the other markets. Futures markets
have a lot of benefits such as lower
commissions, high liquidity you may not be
required to hold physical commodities, etc.
Through this article, you can learn how futures
markets work and the risk factors of futures
trading. Futures markets allow you to buy and
sell futures contracts over the market before
the expiration date. Collect detailed information
on how the futures market works from the below
article. What is Futures Markets? A futures
contract is an agreement between buyer and seller
to purchase and sell an instrument at a
pre-decided price at a future date. An asset can
be soybeans, oil, coffee, ETFs, individual
stocks, cryptocurrency, and so many other
assets. Generally, Futures contracts trade on an
exchange when the buyer agrees to purchase a
given commodity, and the seller provides delivery
at the pre-decided date. The seller should agree
to provide a number of products as per the
contract.
2- The various types of financial institutions
should utilise the futures contract, such as
investors, traders, and speculators.
Additionally, some companies also participate in
it that generally want to receive physical
delivery of the commodities or supplied it. It
may also involve a number of different assets.
Coffee, for instance, is a commodity that can be
easily traded at a predefined date in future. SP
500 is an example of stock future investing.
Check here does the future can become a part of
your portfolio. - Do you know how the future works?
- Future contracts offer secure prices to the
traders and save them from the possibility of
substantial price fluctuations. To understand how
the future works, just considered as a jet fuel - An airline company wanting to save in jet fuel
prices for ignoring unexpected price
fluctuations could purchase a futures contract
agreement to buy a specific amount of jet fuel
for delivery at a specified date on predetermined
costs in the future. - A fuel dealer is selling a futures contract to
maintain a stable fuel market and save price
against an unexpected drop in fuel price in the
future. - When both parties agree on particular terms and
conditions buy 1 million gallons of - fuel, and the seller is ready to deliver it
within 90 days, at specific costs of 3 per
gallon. - In this instance, both buyer and seller are
hedgers. Most of the companies that trade
underlying commodities because physical materials
are the essential requirement of their business.
They use futures contracts to manage their
business in the possibilities of unexpected
price fluctuations. - But not everyone trades products against futures
contracts in the future market. People who are
not interested in buying products as futures
contracts are generally speculators and traders
eager to make money through price fluctuation in
the futures contract itself. For example, if the
cost of fuel increases in the future, the value
of futures contracts automatically increases,
and the contract owner can sell it at a good
price in the future market.
3- These kinds of investors purchase and sell
futures contracts for marking money with no
intention to receive delivery of the futures
contract products. They only buy and sell
futures contracts intending to generate profits
by trading them in the future market. - What are Futures contracts?
- Future Contracts are which you can easily buy and
sell over the exchange. Each futures contract
consists of certain features of all the different
contracts. - The unit of measurement.
- The currency unit in which the contract is
developed. - The currency in which the futures contract is
quoted. - The trade will be executed either with the
physical delivery of a pre-decided quantity of
products or by the cash settlement. - The quantity of material to be delivered or come
within the contract. - Quantity and Grade considerations must be
appropriate. - If you are planning to start trading futures
contracts, be alert if you will not receive - physical delivery. Most typical investors dont
want to be committed to signing for a receipt of
a trainload of a swine while the contract will be
outdated, then traders need to find what they
can do with the contract. - Stocks Futures investing
- A commodity is an important market of the
futures-trading world, but it is not limited
upto hogs, corn, soybeans, and oil. Stock future
investing allows you to trade shares of ETFs and
futures of particular companies. Futures
contracts are also available for bitcoin and
bonds. Some investors prefer trading futures
contracts because they can hold a significant
position when investing relatively less money. In
addition, it provides them with wider potential
for leverage comparatively from holding the
commodities directly.
4Most investors purchase assets predicting that
their price will increase in the future. But
short -selling enable investors to do the
opposite. Investors who borrow funds to bet on
instrument prices will drop so they can purchase
at fewer costs. The U.S. stock markets
particular common application for the futures.
Traders need to hedge, uncovering stocks to
short-sell contracts over the SP 500. If the
stock prices drop, investors make money on the
short-sell, maintaining their exposure to the
index. Alternatively, the same traders feel
confident in the future and purchase a long term
contract to gain more upside if the stock price
rises. Risks factors of futures investing
Leverage and margin Investors borrow a
significant amount of funds to trade in the
futures market because it enhances relatively
fewer amounts for making considerable exposure.
Through small price movements, traders can
generate potential profits that define your
effort and time which traders invested in it.
But borrowing funds often come with high risks.
For example, suppose the market will not move as
expected and perform drastically against your
trade. In that case, you lose significantly more
than you invested. Futures and commodities
brokers offer higher leverage and margins to
their clients than other securities trading
markets. Some commodity brokers provide you
leverage 110 or sometimes 120 based on account
type and contract size, which is much higher
than the stock market. Must note that the
exchange sets all the rules and
regulations. High leverage offers high gains,
but it also consists of significant losses. For
example, 5 fluctuation in price leads investors
consists leverage 110 up to the profit or
losses of 50 of their investment. This
volatility refers that investors are required to
pay more attention to ignoring significant losses
while trading futures. Must shuffle your
investment strategy if you see such type risks
are going to ruin your trade. Must consider
options for it.
5How to trade Futures? Its simple to begin
trading futures. First, you need to open an
account on any investment platform or brokerage
that provides a trading service of the market you
want to trade. A futures broker often asks you
about your trading experience, net worth, and
income. These questions are created to estimate
how much risk you can handle easily. The broker
will offer you leverage and margin based on these
questions.