Futures Strategies Vital for Good Results

The stock market or even the commodity market has different instruments for trading with regards to the preference and methodology of trading sought by the trader. There are several who always believe in trading within the cash market, while you can find others who take the speculation option by trading in futures being an instrument of trade.

The concept of futures is directed towards price discovery of your underlying understanding that can be stocks, bonds, foreign currency or commodities. The theory is to predict the buying price of the underlying in a period of time and that’s referred to as being the contract period. Futures trading can be carried out by both of these individuals as well as by companies. People mainly make use of this as a speculative tool to create quick profits in the market by taking benefit of volatile price movements while businesses generally utilize this as a hedging mechanism.

Mentioned above previously futures contracts have a definite period which range from a month to three months and then the contract expires. You are able to hold your contract in those times and can exit it as soon as you get the cost you are looking for. However, keep in mind that since such contracts will be leveraged ones, it is possible to lose money as quickly as you can make them.

The main advantage of futures trading is this leverage. You can get the benefit of trading in a bigger volume of shares by paying a percentage with the total money as margin and set long or short calls in the market on stocks, commodities, foreign currency and so on. Whenever you trade in cash, you would need to pay the full amount for that quantity of shares you intend to trade in and not many always have that sum with them.

You need to be aware that futures trading price is not based on the exchange but by demand and provide and that’s why the liquidity can become a problem at times. This form of trading is mainly used by hedgers to protect their downside risk around the underlying. Speculators however use future trading to adopt advantage of market volatilities.

It’s also necessary to remember that you must have deep pockets to get into futures trading while you should be able to meet margin calls from your broker should the price of the stock fall where you have taken an extended position. You may even use this money to average your position so that you can make an exit when situations turn favorable.



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