Understanding What Is Futures Trading

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.