What is Futures Trading

What is Futures Trading

Futures Trading essentially pivots around speculation of the commodity’s price moving up or down in the future. The future contracts undergo standardization in that a specific quantity and quality of a commodity is held. The contracts closer to expiration date are highly liquid in that the number of traders bidding on them is more. This will ensure that the price fluctuation in futures trading between the extremes would be less.

Futures Trading throws open the gates of lucrative investment scenario wherein the actual commodity is not required to be bought or sold; only the paper contract to hold the commodity. The investment would remain confined to paper until and unless the contract is exited before the delivery date.

Futures Trading is executed by traders who fall in the categories of hedgers and speculators. The former produces commodity and is interested in such trading for protecting himself against unwanted future price fluctuations for his product.

In the forex market, retailers and institutions effectively employ this to shield themselves against any unexpected price variation of currency pairs being traded. Speculators are retail traders and private investors who wish to pull off profits by purchasing a futures contract anticipating a price rise or selling a contract expected to experience drop in price.

This is in line of stock trading where shares are bought at lower prices and then disposed off at higher rates according to the latest Forex news reveled daily.

Futures Trading is highly leveraged in the sense that for owning a contract, an investor needs to invest only a minute portion of the net contract value. This is termed as margin and amounts to 10% of the contract value. This means that the trader can engage in business for an amount far exceeding the cost that would be incurred if the same was invested outright.

The profits can increase manifold times if predicted prudently and no actual commodities are bought. The entire transaction is purely through security binds and literally no stacking of actual commodity is required.

Futures Trading is highly lucrative owing to the fact that a trader can engage in business with a volume much larger than the margin and also because this market moves faster than the cash counterpart. This is made even better and profitable with the help of most advanced Forex brokers that are now available for all the help needed.

Inside information rarely is leaked out making the futures trading market safer and fairer than others. Almost all futures market is highly liquid owing to the multitude of contracts trader each day and the commissions being charged are measly.

Kenneth Smith

Kenneth Smith lives in Adelaide, Australia and is full time trader. Kenneth offers you his many trading tips in his articles. All the information presented in his posts are based on extensive experience gleaned from years of working with many trading platforms.