What Are Futures In Trading In [ Simple Words ]

 What Is Future Trading In [ Simple Words ] 

What Is Future Trading?

Future trading are contracts to buy and sell an asset at a future date at an agreed no the price

That asset maybe could be stock, indexes, cryptocurrency, gold, commodities forex and others financial assets. Future contracts can be used by many kinds of investors and traders including big players and speculators.

How Does The Future Market Works?

The future market is an exchange where investors and traders could buy and sell future contracts. As usually future contracts investor and trader agree to buy a given qty of stocks or commodity contracts and take delivery on a specific date the seller agrees to provide it.

What is the purpose of futures trading?

Future trading allows investors and traders to secure prices and their positions from unpredictable moves.

Examples:

• The coffee company wanting to lock in coffee beans prices to avoid an unexpected increase can buy a future contract to agree to buy a set amount of coffee beans for delivery in the future at the specified price .

• A coffee distributor may sell future contracts to ensure the coffee beans market stays stable and to protect against the unexpected decline in prices.

• They agree on specific terms: To buy and sell 1 tone coffee beans delivery in the next 100 days at a price where they agree without any change in price this is called future contracts.

In these examples both parties are hedging. They use the future contracts to manage their exposure to the risk of changing prices.

But not everyone in the future market wants to exchange an asset in the future. Those folks are the future investors and traders or speculators who want to make money from price changes in the contracts itself.

If the price of coffee beans rises the future contracts themselves become more valuable and the contract owner could sell more in the future market. Those types of investors and traders could buy and sell future contracts with no intention to take delivery of the asset or future contracts they are just in the market to catch price movement.

Risk Of Trading Futures Contracts

Many investors and traders or speculators borrow a plenty of amount of money to trade the future market because it's the small price movement create big profits.

But borrowing money or taking leverage also increases risk. If the market moves against your position you lose more money than you think you can lose more than you invested. The Commodity Futures Trading Commission [CFTC] also warns that future contracts are complicated,volatile and not recommended for individual investors and traders.

The higher the leverage,the higher the gain but the higher the potential of loss, if prices change 5% can cause an investor leveraged 10:1 to gain or lose 50% of their investment. This kind of volatility means the investors and traders or speculators need the discipline to avoid overexposure to risk to themselves when investing in futures contracts.

Conclusion:

Dear traders and investors, future trading could be a powerful tool but for those who manage their risk properly it's also challenging. Learning the basics of the future market and how the future market works. Future trading involves buying and selling contracts and it also involves high risk. Whether you are trader, investor or speculator you need discipline to follow you are risk management properly for successful future trading and investing. KEEP LEARNING KEEP GROWING.

Stay Connected with Zen Trade X!

Thank you for reading our post on futures trading! If you enjoyed this content and want to stay updated with more insights on trading, investing, and the stock market, make sure to follow us.