How to Get Started in Futures Trading

blog Mar 28, 2023

futures trading

Futures trading is the process of buying and selling a futures contract, which allows you to speculate on price movements without owning the underlying asset. They are often traded for profit, but can also be used as a form of hedge. More info

Speculators and Hedgers

There are two groups of people who trade futures contracts: hedgers and speculators. Hedgers use the products to protect themselves against changes in the underlying prices of assets like stocks, oil or gas. They might buy a futures contract on gasoline at $4.25 per gallon, for example, and sell it at $72. If the market price of gas falls, they make money on the short-sale.

The Future of Futures Trading: Trends and Predictions

Hedgers seek stability and predictability in their business model, so they are willing to accept a certain degree of risk in order to achieve that goal. They often do so by putting up a substantial amount of capital (usually 5 to 10 percent of the total contract value) in advance.

Speculators, on the other hand, don’t want to risk their own funds in order to take advantage of market changes. They instead open a derivatives contract that is tied to the underlying assets, but they have no real desire to ever own it.

How to Get Started

Before you start trading, it’s important to understand the basic ideas and terminology of futures trading. It’s also a good idea to pick an online broker that is trusted and reliable. It’s also a good idea not to spread yourself too thin, since futures trading is often very time-consuming and requires extensive research.

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