Commodities futures, Treasury bond, stock options, global currencies are some of the types of investments futures. Selling and buying take an elevated level and that is why futures are considered as an instrument for hedge funds, institutions, rich investors, and trading firms. Also, currently even the ordinary investors have several opportunities to hit the futures market.
Futures are a technique to obtain profit from temporary price movements, securities, and trends, both up & down, without having any underlying asset. Using the futures contract you can buy a specific financial instrument or commodity in the future. On futures exchange the contracts are traded, that a trader will agree to take delivery of primary or underlying stock in the future. As per the contract, the buyer is supposed to be ‘long and considered as the trader to deliver the primary stock in the future. The seller is supposed to be ‘short ‘of the contract. Both the terms reflects the outlook of the parties. The buyers want or desire that the stock price should increase, and the sellers want the stock price to decrease.
It is a consistent contract, which is traded in a future trade, to sell or buy a specific underlying asset at a definite date and at a certain price in the future. The Future date is a final agreement date or delivery date. The futures market price is predetermined. The cost of the primary asset on the agreement date is known as the settlement price.
The Futures Contract gives the trader the responsibility to sell or buy, which is quite different from an options contract that gives the trader the right, but not the responsibility. In Simple terms, the option contract owner may or may not have to implement the contract. But, in a futures contract, both the traders, the long and short, must execute the contract on the delivery date.
In future contract, the trader invests in selling options and delivers the commodity or shares to the buyer. If it is a cash advanced future, the cash is transferred from the buyer/seller of the futures who persistent a loss to the trader who made returns. To close the position in a current futures contract before the delivery date, then the futures position holder has to balance his position by buying back a short position or by selling a long position, successfully ending the position of the futures and its contractual responsibilities.
Here you can find few main things to be cautious, for in Futures trading:
- Don’t get attracted to hi-price commissions and high-pressure agents, you need to approach very quickly if futures trading method seems to be too good.
- Make sure to start your futures trading with an adequate capital, at least with 25,000 dollars to obtain margin needs.
The futures markets are more for dynamical traders who can have greater liquidity and allows you to sell and buy quickly at a better price that is why it is considered as delicately traded markets.