subject: Futures Trading Strategies Vital For Good Results [print this page] Futures Trading Strategies Vital For Good Results
The stock market or even the commodity market has several instruments for trading with regards to the preference and technique of trading sought by the trader. There are some who always have confidence in trading within the cash market, while you will find others who take the speculation course by trading in futures being an instrument of trade.
The idea of futures is directed towards price discovery of an underlying which can be stocks, bonds, foreign exchange or commodities. The concept is to predict the buying price of the underlying in a period of time and that is referred to as the contract period. Futures trading can be done by both individuals as well as by companies. People mainly use this as a speculative tool to create quick profits available in the market by taking advantage of volatile price movements while firms generally use this as a hedging mechanism.
Mentioned above previously futures contracts use a definite period which range from a month to a few months and then the contract expires. You are able to hold your contract during this time period and can exit it the minute you get the cost you are trying to find. However, keep in mind that since such contracts are leveraged ones, it is possible to lose money as quickly as you can make them.
The main advantage of futures trading is that this leverage. You can get the benefit of trading in a bigger volume of shares by paying a percentage of the total money as margin and set long or short calls on the market on stocks, commodities, foreign exchange and so on. Whenever you trade in cash, you would need to pay the entire amount for your quantity of shares you would like to trade in rather than many will have that sum using them.
You need to be conscious of futures trading costs are not determined by the exchange but by demand and provide and that's why the liquidity could become a problem occasionally. This form of trading is principally used by hedgers to safeguard their downside risk around the underlying. Speculators however use future trading to take advantage of market volatilities.
Additionally it is necessary to know that you must have deep pockets to get involved with futures trading when you should be able to meet margin calls from the broker should the price of the stock fall where you have taken a long position. You may even use the money to average your position so that you can make an exit when things turn favorable.
