Futures Trading – Learn How To Trade Futures

Futures-trading is similar to option-trading since it too refers to the trade of bonds or contracts in a trading exchange.

A ‘Futures contract’ is a uniform agreement for selling or purchasing of a certain product of a prescribed amount at a definite future date. The price of the futures-contract (futures-price) is decided by the market.


Futures – Price

Futures’ trading is mostly done in prominent futures exchanges. The futures-price largely settles on the immediate ‘supply and demand’ balance between ‘purchase’ and ‘sell,’ orders; during the buying or selling of the bond.

In futures-trading, purchasers and sellers generally expect to padlock high prices for ‘futures’ deliverance. However, to a large extent the value of a ‘futures-contract’ stays on the market scenario. Too much of market oscillation can lower the values of these bonds.

The focus of investors in futures-transactions lies more on the profit margin than the commodities they deal with.

Futures – Trading Terminology And System

There are certain terms and methods that a futures-trader or investor must understand.

The final price officially labeled upon a futures-contract at the end of a trading session is known as a ‘settlement price’ for the contract. It is price fixed for that particular day of the specified futures’ trade in the market.

The date of futures-deliverance is termed as the ‘settlement or delivery date’ for the bond.

The owner of a futures-bond is provided with an obligation to obtain or give delivery under the rules of the contract. Herein lies the most prominent difference between an options-trader and a futures-trader.

An options-bond buyer has the right and no obligation. He can decide whether or not to execute the contract. However, in futures-trade; both the sides (sellers and purchasers) are under the compulsion to settle the contract on the delivery date.

The seller hands over the assets to the purchaser. In case the money is already settled for the futures-bond, it shifts from a loss-incurring to a profit-making trader.

A ‘futures-position’ owner has to counterbalance his stance by covering ‘short-positions’ or selling a ‘long-position;’ to come out of the ‘obligation’ before the delivery date.

Futures-contracts are margined on an everyday basis. This is done in order to restrict the ‘credit-risk’ to the futures market. A futures trading margin (surety-bond) is set by traders. It is generally around 5-15% of the asset value.

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