All About Futures Trading

At the moment, traders have a huge number of options on how to make money. For example, futures — it`s when two parties agree on the value of some asset in the future. The seller hopes that the asset will cost less, and the buyer expects high prices.

When sorting out what are futures markets, consider that it`s like a parlay. The parties argue whether the price of an asset will rise or fall. At the same time, both parties must fulfill the agreement. The realtor usually acts as an intermediary. It ensures that the contract is executed on time with all the conditions.

Essential Advantages

Typically, futures trading can be beneficial for a number of reasons:

· this category of assets allows to benefit from price increases as well as from declines;

· it represents financial leverage;

· it is associated with low transaction fees.

This way, compared to operating the underlying asset directly, this option is more favorable.

Types And Specification of Futures

When preparing to try the, remember that there are two categories:  

  1. Deliverable one involves the purchase or sale of an underlying asset that can be delivered, for example, raw materials, precious metals.
  2. Settled one is a contract for underlying assets that cannot be delivered or shipped, such as indices.

Regardless of the selected type, any futures can be described using certain parameters. Name of the contract and abbreviated conditional name, type and size of the futures, basic term of the agreement, as well as the date of delivery. On some platforms, users can also see the minimum price fluctuation threshold and the cost of the minimum step.

What Is a Warranty Support?

This term is also often used when dealing with futures. Usually, warranty support means certain cash, which is blocked on the account immediately after the opening of the transaction. When a position is closed by the customer, the blocked amount becomes unfrozen.

Actually, you do not need to pay for futures. The guarantee in the amount of 10-35% of the value of the entire contract is temporarily frozen. Then the trader receives the amount back, minus the commission for the transaction. The commission usually depends on the policy of the platform.

Other Nuances

Also, when working with futures, you should pay attention that its value differs from the price of the underlying asset. This happens because bidders are waiting for some events that may influence the value of the underlying asset.

So, remember two terms. Contango means a situation when futures are traded more expensive than the underlying asset. Backwardation means the reverse situation. The difference (spread) between the futures and the underlying asset is called the basis. Respectively, the basis can be either positive or negative. Under normal conditions, when nothing special happens to the underlying asset, contango is most often observed in the market.

Keep in mind that futures are not the most suitable option for beginners, as it is quite a complex tool. Therefore, it`s worth dealing with them only after a detailed study of the base.

Manisha Puri
A passionate ink singer with the idea of sharing the new vision and different perspectives on various concepts and thoughts in good reads. Also, aims for spreading the word with the best SEO techniques.

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