FREE Futures Paper Trading. Ready To Try Online Futures Trading? A Beginner's Guide What is Futures Trading? What is a Futures Contract?

A Short History of Futures Trading Who Trades Futures? The Advantages of Trading Futures What is Futures Trading? Futures Trading is a form of investment which involves speculating on the price of a commodity going up or down in the future.

What is a commodity?

Most commodities you see and use every day of your life:. All these commodities and dozens more are traded between hundreds-of-thousands of investors, every day, all over the world. They are all trying to make a profit by buying a commodity at a low price and selling at a higher price. Futures trading is mainly speculative 'paper' investing, i. To the uninitiated, the term contract can be a little off-putting but it is mainly used because, like a contract, a futures investment has an expiration date.

You don't have to hold the contract until it expires. You can cancel it anytime you like. In fact, many short-term traders only hold their contracts for a few hours - or even minutes! The expiration dates vary between commodities, and you have to choose which contract fits your market objective.

For example, today is June 30th and you think Gold will rise in price until mid-August. The Gold contracts available are February, April, June, August, October and December. As it is the end of June and this contract has already expired, you would probably choose the August or October Gold contract.

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The nearer to expiration contracts are usually more liquid, i. Therefore, prices are more true and less likely to jump from one extreme to the other.

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But if you thought the price of gold would rise until September, you would choose a further-out contract October in this case - a September contract doesn't exist.

Neither is their a limit on the number of contracts you can trade within reason - there must be enough buyers or sellers to trade with you. All futures contracts are standardised in that they all hold a specified amount and quality of a commodity.

For example, a Pork Bellies futures contract PB holds 40,lbs of pork bellies of a certain size; a Gold futures contract GC holds troy ounces of 24 carat gold; and a Crude Oil futures contract holds barrels of crude oil of a certain quality. Before Futures Trading came about, any producer of a commodity e. The system needed to be legalised in order that a specified amount and quality of product could be traded between producers and dealers at a specified date.

Contracts were drawn up between the two parties specifying a certain amount and quality of a commodity that would be delivered in a particular month Futures trading evolved as farmers and dealers committed to buying and selling future exchanges of the commodity.

Hedging vs. Speculation with Futures - ucujaluxu.web.fc2.com

For example, a dealer would agree to buy 5, bushels of a specified quality of wheat from the farmer in June the following year, for a specified price. The farmer knew how much he would be paid in advance, and the dealer knew his costs. It didn't take long for businessmen to realise the lucrative investment opportunities available in these markets.

They didn't have to buy or sell the ACTUAL commodity wheat or corn, etc. As long as they exited the contract before the delivery date, the investment would be purely a paper one. There are two main types of Futures trader: A hedger is a producer of the commodity e. For example, if a farmer thinks the price of wheat is going to fall by harvest time, he can sell a futures contract in wheat. You can enter a trade by selling a futures contract first, and then exit the trade later by buying it.

That way, if the cash price of wheat does fall by harvest time, costing the farmer money, he will make back the cash-loss by profiting on the short-sale of the futures contract. Other hedgers of futures contracts include banks, insurance companies and pension fund companies who use futures to hedge against any fluctuations in the cash price of their products at future dates.

Speculators include independent floor traders and private investors. Futures are highly leveraged investments. This is an excellent return compared to buying a physical commodity like gold bars, coins or mining stocks. The margin required to hold a futures contract is not a down payment but a form of security bond. If the market goes against the trader's position, he may lose some, all, or possibly more than the margin he has put up.

But if the market goes with the trader's position, he makes a profit and he gets his margin back. For example, say you believe gold in undervalued and you think prices will rise. Each Gold futures contract holds ounces of gold, which is effectively what you 'own' and are speculating with. Speculating with futures contracts is basically a paper investment.

The actual commodity being traded in the contract is only exchanged on the rare occasions when delivery of the contract takes place i. An investor can make money more quickly on a futures trade. Firstly, because he is trading with around ten-times as much of the commodity secured with his margin, and secondly, because futures markets tend to move more quickly than cash markets. Similarly, an investor can lose money more quickly if his judgement is incorrect, although losses can be minimised with Stop-Loss Orders.

My trading method specialises in placing stop-loss orders to maximum effect. The open out-cry trading pits -- lots of men in yellow jackets waving their hands in the air shouting "Buy! Also, any official market reports are released at the end of a trading session so everyone has a chance to take them into account before trading begins again the following day.

Most futures markets are very liquid , i. This ensures that market orders can be placed very quickly as there are always buyers and sellers of a commodity. For this reason, it is unusual for prices to suddenly jump to a completely different level, especially on the nearer contracts those which will expire in the next few weeks or months.

Commissions vary widely depending on the level of service given by the broker.

Why Leverage is the Biggest Advantage is also the biggest Disadvantage in Futures Trading. How to Protect Profits with Stop-Loss Orders. Where to find Market Information. Learn to Trade Futures with Our Complete Home Study Course. More Info FREE Trading System Performance: FREE Futures Paper Trading Ready To Try Online Futures Trading? Most commodities you see and use every day of your life: A Short History of Futures Trading Before Futures Trading came about, any producer of a commodity e.

Futures trading had begun! The Advantages of Trading Futures Trading futures contracts have several advantages over other investments: In the next section, you will learn: Why Leverage is the Biggest Advantage is also the biggest Disadvantage in Futures Trading How to Protect Profits with Stop-Loss Orders Where to find Market Information Next.

FREE Trading System Performance: Home FREE Alerts Technical Analysis Trading Articles Choose a Broker FREE Demo Trading Trading Books Futures Links Contact. There is risk of loss trading futures. The information presented in this site is for informational purposes only. Investment in futures involves a high degree of risk, your investment may fall as well as rise, you may lose all your original investment and you may also have to pay more on the original amount invested.

Consult your broker or advisor prior to making any investment decisions. Past or simulated performance is not a guide to future performance. Futures-Investor, Old Mill House, Rockfield, Monmouth, NP25 5QE.

Learn to Trade Futures with Our Complete Home Study Course More Info.