Begin on Your Way With Futures Trading

A large number of investors are taking part in futures trading

, exclusively future contracts. This type of trading is becoming more popular due to more liquidity on the market. Most of the time, the actual delivery of the commodities is rarely taken at the end of the contract period. This will be a brief article which we hope to explain a little more about this type of investing and trading.

Future contracts will not be cash commodities; there is a limited life span. Essentially this means that as a buyer, you agree to pay a fixed price on a set date for the underlying commodity. Gains and losses are based upon the actual price and the fixed price decided on. The futures trader will put a small fraction of the underlying contract, typically from 10-15% margin. This does not behave as a down payment; it acts as a performance bond.

This type of trading is frequently more tumultuous than the stock market. Future contracts could gain at one time than go downward the next, basically set by variables that are quite complex, thus which makes it very unpredictable.

There are typically 2 main groups which will participate in the futures trading sector. One known as the speculator and the other being the hedgers. The spectators are ones whom will take the absolute position, being either long or short on the market. They are by most part called "independent floor traders" or "locals". The locals typically are known to trade for brokerages or personal clients. They often times will also trade spreads. The hedgers are typically people or businesses whom deal with the trading of cash commodities. Hedgers also employ the futures to protect themselves from unfavorable price movements.

Futures contracts follow rigorous standards. The contract should state which currency, the rate of interest, the delivery month, how much the actual underlying assets in addition to units. It should also state the settlement type as in physical or cash and the last date of trading.

In conclusion, it is a fact that future contracts are on the most part created exclusively for the purpose of speculation and/or hedging. This particular market is very actively traded which allows for a wide variety of price fluctuations and ranges. Some futures permit trading twenty-four hours a day, and also the market boasts a very good liquidity and volume. Each contract area features its own specs and parameters and in general commissions tend to be low for future contracts.

Begin on Your Way With Futures Trading

By: Sharon Dawkins

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