Even though the name itself implies about futures trading, in very simple way futures trading is basically the practice of trading that includes buying and selling of a particular commodity with standardized quality at an expiration period and pre-determined market price. Apart from its name factor, when you will have the exposure and experience with direct securities like bonds and stocks, it will be an easy learning for you.
Always remember that the futures contracts are traded on a different platform than these direct securities, particularly in the futures exchange. That’s how the commodity being traded is a tangible asset. The commodity is in sharp contrast with direct securities such as warrants, bonds and stocks, which are evidenced only by paper but cannot be touched per se. In the futures market, the things such as sugar, crude oil and precious metals are being traded.
Moreover, you need to know that futures contracts are one kind of derivative contracts and are highly leveraged; hence, it’s highly risky. The very small changes in the underlying value of the commodity can greatly influence the value of the contract itself.
Futures trading do not operate in a few hundred dollars but on hundreds of thousands of dollars. Therefore, if you only have a few thousand dollars to spare which is your only life savings, then, before investing in the futures market, you must think again.
So, even before you dream of raking in the big bucks on your first futures contract, it is always very important to obtain the basics of futures trading. Try to use your trading system to your advantage as it will assist in making trading decisions which is based on quantitative analysis rather than the emotions like pride, fear and greed.
You need to protect yourself at all times, which can signify using sell or buy stops to limit losses within your comfort zone and utilizing buying puts as heading strategies. You have to stay focused as futures trading demands focus on what is important, that is definitely profit. In fact when you are on the futures exchange, the lesser you get distraction, the better for your decisions would be.
To get the success you have to be open enough to new ideas. Remember, no trader is so familiar about the market that he can afford to ignore new trends, new issues and new information. Being flexible with your positions as the market changes is always beneficial. If you want, you can always go for a financial advisor and a futures trader; they will help you to carry out the transactions in your behalf. Moreover, keep in mind that it is your money at stake; therefore, you have the right and also the responsibility to exert final control over it.
Finally, it can be said that futures trading can be a very profitable business when you support yourself with the necessary information, exposure and experience. Futures trading basically depend on your investment style and profit goals. So, plan your moves well for your future.