Futures, also known as futures contract, is an agreement to deliver an asset at a specific price on a future date.
When you buy a futures contract, you are expecting delivery. When you sell a futures contract, you are expected to deliver.
Fact #1: Less than 2% of all futures contracts are actually being delivered.
Fact #2: The bought/sold futures contract can be “extinguished” by selling/buying the corresponding futures contract before the delivery date.
In this formally written contract, there is a specific quantity of the asset. For example, 1 Gold futures contract is traded in 100 troy ounces and 1 Oil futures contract is traded in 1,000 barrels.
As the price of the futures contract is locked-in at the time of purchase or sale, you make money when the current price of the underlying asset rises or falls.
What Is Futures Trading
Futures trading is buying and selling futures contracts in currencies, bonds, commodities and stock indexes.
With a diversified portfolio of futures contracts, an investor will have maximum diversification.
How To Get Started In Futures Trading
- Understand there are 4 different classes of futures contracts that can be traded (ie. Bonds, Commodities, Currencies, Stock Market Indices).
- Know all about the futures contract specification, such as the delivery months and the active trading hours. For example, gold futures is traded in 100 troy ounces, and traded from Sunday 6pm to Friday 5.15pm, with delivery months in February, April, June, August and December.
- Glance through the Commitment of Traders weekly to get an idea of what is hot and what is not. The commitment of traders report is updated once per week, and is published by the governing body of the United States futures markets. It shows how many contracts the hedge funds and banks are buying or selling.
- Choose one or two contracts that you are interested in and read about the market forces for the particular futures market.
For example, Corn, Soybeans, Wheat or Cotton.
Study the futures prices in the continuous futures price chart. Usually, futures prices are not continuous as a futures contract is bought or sold by the delivery month. We have made it easier for you by joining the futures contracts into a continuous futures price chart.
- Study price history to understand how the futures prices have moved in the past, and think about how you could have traded
- Purchase a futures trading system.
- Trade with your system!
Make full use of all the information futures-explained.com has to offer. Here, you will find plenty of information on all popular futures contracts, and the market forces that move them.
If you are thinking of improving your knowledge about futures trading, you can read about the tips on setting up a trading plan. Everything you want to know about live futures trading, including the best futures brokers is here as well.