Futures Trading High Liquidity Market

Numerous investors are taking part in futures trading

, particularly future contracts. This form of trading has become widely used due to more liquidity available in 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 short article which we hope to describe more about this type of investing and trading.

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

This form of trading is frequently more tumultuous than the stock market. Future contracts might 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 two major groups which will participate in the futures trading market. One called the speculator and the other being the hedgers. The spectators are ones whom will take the absolute position, being either short or long on the market. They are by most part called "independent floor traders" or "locals". The locals usually are known to trade for brokerages or personal customers. They often times will likely trade spreads. The hedgers are usually consumers or businesses whom deal with the trading of cash commodities. Hedgers also use the futures to protect themselves from unfavorable price movements.

Futures contracts adhere to rigorous standards. The contract should state which currency, the interest rate, the delivery month, the amount of the 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 closing, 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 quite actively traded that allows for a multitude of price variances and ranges. Some futures permit trading twenty-four hours a day, and also the market also has an excellent liquidity and volume. Each contract area features its own specs and parameters and in general commissions are low for future contracts.

by: Sharon Dawkins

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