subject: Facts On Futures Trading [print this page] Facts On Futures Trading Facts On Futures Trading
The futures contract in simplified terms is a contract to buy or sell by which two parties enter, they will agree on a cost today for a 'future' date when the commodity is going to be purchased. As with any form of contract, this is a binding legal agreement, and because of this is traded on regulated exchanges. This particular derivative is speculative as you are speculating on the future price and also the market movements.
Commodities are usually Forex, stock indexes, metals, foods, energy, grains, etc. Often times future trading is wrongly identified as option trading. The one similar attribute is that they both offer an expiration day's the contract. Futures contracts are a duty to buy the underlying share, whereas the choices contract states the right to purchase the product at a set price (strike) before its expiration. When you are long (buy) a choice, the risk is limited to what was paid.
Futures trading uses leverage which could make this a high risk product, since this risk can be substantial, it is important to employ some risk management strategies and what can happen if you don't make this important. Since one can use more capital than they have, if not fully monitored can lose over and about what is in their account.
There are quite a few important rules that anyone who is trading futures will want to abide by. First, attempt to instill your brain set to simply trade future positions based upon their performance. If the position hasn't shown any profit by the end of day two, exit or close that position. As with all trading instruments don't get emotional, do not second guess yourself, and realize you may have many losses before you start to profit. Also it is usually best to to not put all your capital in a single market, and never over-trade.
Investors whom generally do well when trading in futures are the ones that first of all know their market. They have done their research, analyzed historical data as well as trends. Most have a plan of action and follow it, and they are good planners. They know how to speculate and know the power of hedging. They have also carefully structured a strategic plan, and they also established their risk capital. This means they are fully aware how much they can lose, and it'll not cause any ill-effects on their daily living expenses
