Trading futures involves a variety of strategies and risks, and it’s important to understand your risk appetite. You should also decide your approach to futures trading and identify your objectives.
Basics of futures trading
The market for OnlineFuturesContracts is centralized, meaning that all transactions are carried out on exchange floors. There are several exchanges, including the Chicago Board of Trade and the Mercantile Exchange.
Futures trading can be a great way to diversify your portfolio by accessing products that may not otherwise be available. It can also provide direct exposure to underlying assets, like oil or precious metals.
Using Options to Hedge Your Futures Positions
Hedging versus speculation
In the past, people who traded futures contracts were primarily hedgers. They bought futures to lock in a price for their products and ensure that they got paid on time, even if prices dropped or rose.
But today, many people trade futures for profit. These traders are called speculators and include full-time professional traders, small individual traders trading their own funds, portfolio managers, and hedge funds.
Speculators are attracted to futures because they can quickly and efficiently enter and exit the markets. They also have low margin requirements and fast price movements.
Futures trading leverages a relatively small amount of capital to control a much larger contract amount, which is one of the main advantages of futures, but it can also be a huge risk. For example, a change of just 5% in the price of a futures contract can lead to a significant loss on a 10:1 leveraged investment.