The Basics of Futures Trading
Trading futures involves purchasing and selling contracts that cover a variety of commodities, including agricultural products like corn or lumber. These contracts offer investors a chance to gain exposure to these markets, and they can be an excellent way to diversify your portfolio.
Futures Contract Size
Most futures are exchange-traded on the Chicago Mercantile Exchange or New York Board of Trade, and they have expiration dates. These dates determine when a trader can sell or buy the contract at a profit. Read more onlinefuturescontracts.com
How to Choose a Futures Broker That Fits Your Needs
There are two main groups of people who use futures contracts: hedgers, who are hedging their exposure to a particular market, and speculators, who are betting that prices will move in their favor. The former can be full-time professional traders, small individual traders, portfolio managers and hedge funds. The latter includes a wide variety of investors, from individuals and smaller entities to major investment firms and pension funds.
How They Work
The price of a futures contract is fixed in advance and is the agreed-upon price that the contract will be exchanged for at an agreed upon time (expiration). As it approaches its expiration date, the price will likely be higher or lower than the current market value.
When a futures contract is closed out, the buyer and seller of the contract may exchange their cash for physical delivery or settle the position in another form, such as an option to purchase or sell an asset at a specified price later on. This transaction can be done for a number of reasons, including to lock in profits, to reduce risk or to hedge against price fluctuations.