The Basics of Futures Trading

futures trading

OnlineFuturesContracts trading is a strategy whereby an investor locks in the price of an underlying asset for a certain period of time. It is also leveraged, meaning that you can trade with a small amount of money, known as margin, and your trading provider will loan the rest of the value of the contract to you.

Traders can take advantage of this opportunity to make profits by buying a futures contract and selling it at a higher price later, or vice versa. It can be a lucrative way to trade, but it is also risky.

Hedgers and speculators

Hedgers are real people who are using the futures market to protect against the risk of a decline in the price of an underlying asset, such as a commodity. These people are typically farmers or other producers who want to lock in the price of their products at today’s prices.

The Role of Futures Trading in Commodities Markets

For example, a farm that sells corn is interested in locking in the current price of $4.25 per bushel so that they can continue making a profit. Similarly, an oil producer is looking to hedge against the risk of losing revenue when prices drop.

Another common use of futures contracts is by investors who want to speculate on the price of a particular asset, such as gas or oil. These people are called speculators and are made up of full-time professional traders, hedge funds, portfolio managers and individual investors.

The key to successful futures trading is to choose the right markets for your trading style. Some markets may be more volatile than others, so it is important to pick the one that fits your preferences and risk tolerance. Likewise, it is important to not try and trade too many markets at once. Most traders have a difficult time keeping up with the news and charts of more than a few markets at once.

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