How To Trade Futures

HOW TO TRADE FUTURES



Wondering how to trade futures? Well here is some quick history. The modern futures market originated in the late 1800s when farmers started selling contracts to provide farming products at some time in the future. They did this in an attempt to anticipate the needs of the market in the future and to smooth their returns over fluctuating market conditions.



Futures markets have changed enormously since then. Today, the futures market is open to a much wider range of commodities than just farming products. This global commodities market now includes such diverse contacts as manufactured goods and financial instruments. A futures contract is essentially a guarantee that a particular product must be sold at a certain price on a certain date.



When investors enter the futures market they do not expect actually delivery of the physical products. The acutal product in question is acutally irrelevant. The only thing that is traded is the actual contracts and the change in the value of these contracts determines whether the investor wins or loses and by how much.

Futures contracts always have two positions; a long position and a short position. The seller takes a short position and the buyer holdsthelong position. Settlement of futures contracts occurs daily.



Here is an example to help clarify a futures transaction. A dairy farmer enters into a contract with another party to sell 1000 gallons of mil at $10 a gallon. At the end of the contract, the current market price of milk is $9 a gallon. The Dairy Farmer will now make a profit of $1,000 on the contact. Even though the market price is $9, the other party had agreed to pay the framer $10 so the farmer makes $1,00 profit and the other party realises a $1,000 loss. Had the price of milk gone the other way, the farmer would have been the one out of pocket.



Investors attempt to guess the direction of market movements and make profits by either buying or selling contracts. Interestingly, unlike share transactions, in futures trading their is always a winner and a loser. it is not for the faint hearted.



HOW TO TRADE FOREX SUCCESSFULLY



The FOREX or foreign exchange market has many advantages over trading futures. The FOREX market is the largest financial market in the world. It is also far more liquid making it easier to place stop orders without experiencing what is know as slippage. Slippage occurs when your instrument fails to trade at the exact price of your stop order andthereforestops out at a lower price than you would have desired.



Futures markets are generally only open around seven hrs per day. Foreign exchange markets are essentially open 24 hours a day Monday to Friday. This means that Forex traders are able to trade outside of the other markets normal trading hours.



There is no brokerage charged on forex trades. Brokers make their money on what is called the spread: the difference between the bid price and the ask price. If you are to enter or exit a futures contract, brokerage needs to be paid.



Forex markets have extremely large trading volumes and as a consequence, trades are generally executed immediately. Due to the fact that the futures market is much more illiquid, you may have to wait some time before your offer price is hit.



Whether you want to learn how to trade futures or forex, it is imperative that you do plenty or research first and do some paper trading before you start risking your hard earned cash.