Trading the futures market is one way to profit from the price movements of commodities. If you can accurately predict the price movement and the timing of the price movement by using an effective trading strategy like the Best Unusual Options Activity Scanner, then you can make good profits in futures trading. You can also execute trades from any location with the use of Futures Trading Mobile App.
What is Futures Trading
Futures traders trade contracts in the futures markets. A futures contract is a contract to buy or sell the underlying asset at a future date at the originally agreed-upon price.
There are two sides to the trade, a long position, and a short position. The long position is the buyer who believes the market is going up. The short position is the seller who believes the price of the commodity is going down.
For example, you enter into a futures contract with your neighbor to buy a pound of sugar from them for $5 in two months.
By the end of the two months, the price of the sugar has gone up to $10. Your neighbor still has to sell you that pound of sugar for $5. You can then turn around and sell the sugar to another neighbor for the current price of $10, and you will profit by $5.
There are different types of futures traders. Companies will trade futures and take delivery of the underlying product because they need it for their business. Maybe a breakfast food company needs sugar and wheat. They will trade in the futures market and take delivery of those commodities to make breakfast food.
Most traders never take delivery of the underlying asset, and profit (or lose) from the price movements of the commodity. There are many types of commodities that a futures trader can trade including:
- Precious metals: Palladium, silver, platinum and best gold etf
- Agriculture: Sugar, wheat, coffee, soybean products, oats, corn and coffee
- Livestock: Cattle, feeder, pork bellies and hogs
- Energy: Oil, natural gas, heating oil and ethanol
- Industrial metals: Zinc, aluminum, tin, recycled steel, molybdenum, lead and cobalt
- NASDAQ, S&P500 and DOW futures
Futures trading allows traders to control a large amount of the underlying assets without putting up much money. This is called leverage. There is a risk with too much leverage if the trade starts going the opposite direction you had predicted.
Predicted Price Movements
An advantage with futures trading is that you can make money whether the market is going up or going down. But you must correctly predict the direction and time frame in order to profit from the price movements. Needing a Trading Software Company to get you started? Visit www.liquiditybook.com.
Many futures traders will use a combination of charting and technical analysis along with fundamental analysis. You should learn both methods before you start trading.
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Technical analysis is learning how to interpret price movements on a chart. Experienced chart readers can determine the price movement and direction by looking at various formations and patterns on the charts.
Fundamental analysis is understanding the conditions that could cause price movements in the commodity. The supply and demand of a commodity would be something useful in fundamental analysis.
It could be the knowledge of what a drought in Brazil will do to the coffee crop. Or will a hurricane heading for the Gulf of Mexico cause oil prices to increase dramatically.
To make trading easier, there are computerized robotic trading systems that are based on algorithms. Using a trading system can make trades faster, help with decisions, and take the emotions out of trading.
Setting Up a Brokerage Account
Before you start futures trading, you will have to open an account with a brokerage firm that allows futures trading. A firm that offers prime brokerage services is what you need to open a standard brokerage account. Then you will have to get approved for options and margin privileges.
Futures trading can diversify a portfolio, allow you to hedge positions and gives you the ability to profit in a rising or falling market.