People who have never traded in futures contracts often wonder, “What is futures trading?”. They think that large financial risk is involved and only wealthy people dabble in that. So, what is meant by trading in futures? Futures are obligations to deliver a particular amount of commodity on a certain date in the future. Examples of commodities are gold, silver, wheat, corn, oats, currencies, stock indexes and bonds.
Predicting Future Price Movement
Trading futures is not the same as other types of investing because a person who trade futures is not required to own the commodity. He makes his trading decision based on the speculation about the future price movement of the commodity. For example, if the price will move upwards in the near future, he will buy the commodity. Similarly, if he decides that the price will go down, he will sell the futures contract.
Futures Are Speculative
In today's trading environment, future contracts are very popular with speculators; most of them liquidating their trading position before the contract expiration date, making a profit or incurring a loss.
No Delivery Involved
Although futures are traditionally used by farmers with physical delivery, for speculation purpose, it is not the responsibility of the speculator to deliver the commodity. They do play an important role in the futures markets because they trade in bigger volumes. Their activities affect the price movements of commodities, and thus the economy. Hence, it is necessary to monitor trading volumes to get a clear picture of the price movements.
Speculators Introduce Liquidity To Futures Market
Speculators make it easier for people who take actual delivery of the commodity to plan for the future. The actual buyers and sellers feel at ease knowing that there is always someone in the market ready to buy the contract when the contract is being sold or sell the contract when the contract is being bought.
Start Futures Trading With Opening An Account
If you want to trade futures, open an account with a reputable broker who has a good track record. Decided on what futures contract that you want to trade since there are so many to choose from. Then monitor the market to determine futures price movements before taking a trading position.
Use What The Professional Traders Use
All professional traders use historical price charts, chart patterns, current economic news and other important indicators like moving average price and moving average convergence divergence (MACD). You should learn how to use them to ensure that your trading position is in accordance with these indicators.
Understand Futures Contract Specifications
Always check contract specifications to know the busiest trading hours of the contract, contract expiration months as well as the last day of trading. You will gain experience when you actually trade futures.
To prevent making losses when you are just beginning, trade with a practice account to gain sufficient knowledge of the trading platform and also to acquire market experience. The price movements and data available in practice account are real-time; hence, you will gain hands-on knowledge and experience without losing any money.
Be Disciplined
Trade in a disciplined way and don’t panic even if you made a loss. Go back to your trading strategy and make necessary changes, if required. After some time, you will be able to earn some money, and you will never wonder, “What is futures trading?” again like a beginner.
Thursday, May 10, 2012
The Secret Of Commodities Trading
Trading in commodities requires quick thinking, but large profits and losses can occur with a small trading account. Due to its leveraged nature, the commodities futures trader can control futures contracts for fraction of the real value. In technical term, this is known as margin trading.
Before anybody with a little capital, but possessing a strong want to learn can get started in commodities trading, he must understand the risks involved. Another pre-requisite is he is willing to commit the learning effort needed. There is a sharp learning curve and new futures traders lose money. However, those that are persistent and are patient enough to apply what they learn have the potential to make large profits in the long-term.
Start with a basic commodities trading course and decide on the commodities to start with. Be focused and learn as much as possible about those selected commodities. The recommended starting point for many traders is grains. Grains are seasonal, weather-dependent and fairly easy to research.
When you are ready, open a futures trading account. There are a few things to think about when choosing a futures brokerage. These include the cost structure or fees charges on each transaction; the interest paid on deposits in the trading account; the SPIC insurance; the trading platform and charting tools used: the free research provided; the emergency rules for opening and closing trades when normal rules fail. There are many online futures brokerages offering many services and benefits. Do the research necessary to choose one suitable for your needs.
Opening an account with the futures brokerage of your choice will need providing personal income information, history on credit and earlier experience in trading. The broker wants to know your capacity to handle severe losses and if there is any chance that you would go broke. All the inputs would decide your trading account limit. For example, the broker may need a higher margin for each trade or limit the number of contracts tradeable until your track record established for certain time. Once the account opens, you just need to fund the account.
Unlike stocks, a futures trader can go long or go short on any commodity traded. Money made or lost in whatever direction the market moves, depending on direction of the position. Market research and trading strategy will help you to decide when to enter and leave the market traded. It requires a carefully developed set of trading rules for making trading decisions and the trader should develop the necessary discipline to adhere to his trading plan.
Traders should learn to limit their risk on trades by setting limits on the amount that would be lost if the futures market goes against the trade. This is by setting a stop-loss order with the brokerage to close a trade when it is not working out. By limiting the most severe loss, the trader would be able to survive in the futures market for a very long period, while waiting for his lucky break. This is something that every trader got to know.
The trading strategy enhanced as the trader gained more knowledge about the commodities traded. Each commodity trades is a short-term speculative investments, but trading is long-term. The best trader is able to adjust the strategy to new circumstances and better knowledge.
Before anybody with a little capital, but possessing a strong want to learn can get started in commodities trading, he must understand the risks involved. Another pre-requisite is he is willing to commit the learning effort needed. There is a sharp learning curve and new futures traders lose money. However, those that are persistent and are patient enough to apply what they learn have the potential to make large profits in the long-term.
Start with a basic commodities trading course and decide on the commodities to start with. Be focused and learn as much as possible about those selected commodities. The recommended starting point for many traders is grains. Grains are seasonal, weather-dependent and fairly easy to research.
When you are ready, open a futures trading account. There are a few things to think about when choosing a futures brokerage. These include the cost structure or fees charges on each transaction; the interest paid on deposits in the trading account; the SPIC insurance; the trading platform and charting tools used: the free research provided; the emergency rules for opening and closing trades when normal rules fail. There are many online futures brokerages offering many services and benefits. Do the research necessary to choose one suitable for your needs.
Opening an account with the futures brokerage of your choice will need providing personal income information, history on credit and earlier experience in trading. The broker wants to know your capacity to handle severe losses and if there is any chance that you would go broke. All the inputs would decide your trading account limit. For example, the broker may need a higher margin for each trade or limit the number of contracts tradeable until your track record established for certain time. Once the account opens, you just need to fund the account.
Unlike stocks, a futures trader can go long or go short on any commodity traded. Money made or lost in whatever direction the market moves, depending on direction of the position. Market research and trading strategy will help you to decide when to enter and leave the market traded. It requires a carefully developed set of trading rules for making trading decisions and the trader should develop the necessary discipline to adhere to his trading plan.
Traders should learn to limit their risk on trades by setting limits on the amount that would be lost if the futures market goes against the trade. This is by setting a stop-loss order with the brokerage to close a trade when it is not working out. By limiting the most severe loss, the trader would be able to survive in the futures market for a very long period, while waiting for his lucky break. This is something that every trader got to know.
The trading strategy enhanced as the trader gained more knowledge about the commodities traded. Each commodity trades is a short-term speculative investments, but trading is long-term. The best trader is able to adjust the strategy to new circumstances and better knowledge.
Subscribe to:
Comments (Atom)