How to Get Started in Futures Trading

How to Get Started in Futures Trading

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futures trading

Futures trading offers a wide range of investment opportunities in stock indexes, energy, currencies, cryptocurrencies, interest rates, grains and livestock. It also gives you access to leverage, diversification and hedging.

Identify a Market That’s Right for You

There are many types of futures, and each is suited to different trading strategies. You need to choose a market that suits your risk appetite, as well as the volatility and liquidity of the underlying assets. Some indices, for example, experience higher levels of volatility than others. Resource

The Pros and Cons of Futures Trading

Buying futures is similar to investing in stocks, but with a significant difference: you agree to exchange the underlying asset at a fixed price in the future, rather than acquiring ownership of it directly. There are two basic kinds of traders in the futures market: hedgers and speculators.

Hedgers seek stability and predictability for their business by locking in a price for an underlying product or service. They usually sell or buy futures contracts to lock in a specific price for goods they produce, sell or consume.

Hedgers may also use futures as a tool to manage volatility, such as when the price of jet fuel fluctuates rapidly and they want to keep their expenses at a predictable level.

Traders must be aware that futures contracts expire and that they will face losses when the contract goes into default or expires without payment. They also need to monitor the amount of leverage they are using as it amplifies loss in certain circumstances.

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