Futures trading can be a rewarding way to generate income. However, there are risks involved and it is important to be aware of these before starting to trade.
A OnlineFuturesContracts is a standardized agreement between two parties to exchange a particular asset at a fixed price prior to a certain date, known as an expiration date. This can include a basket of company stocks, commodities, interest rates or currencies.
Traders can buy (go long) and sell (go short) futures contracts based on their expectations for the price of the underlying asset. The idea is that the underlying asset will appreciate in value and the trader will make a profit by selling it at a higher price than the purchase cost.
There are 2 types of traders in the futures market: hedgers and speculators. Hedgers use futures to lock in prices for their products and businesses, avoiding the volatility of the underlying assets.
The Relationship Between Futures Trading and Interest Rates
In contrast, speculators seek to make money from price changes within the futures contract itself. Suppose that an investor expects that the price of gasoline will rise from $2.50 a gallon to $3 a gallon in the future. The investor could sell the current futures contract and reinvest the money at a lower price, generating a profit.
When you want to trade in futures, you should first open an account with a reputable brokerage firm. Doing so ensures that you have access to a variety of instruments and tools and will also save you time. It is essential that you choose a broker with a history of sound practices and customer service, and that provides you with competitive fees.