Introduction to Futures Trading

By | April 4, 2011

What is Futures Trading?

Futures trading is the trading of futures contracts, which allows specific
stocks, commodities or such assets to be traded at a pre-determined price “in
the future”. NOTE the Quotation marks of “in the future”. Essentially Futures
trading is just an auction process where Supply and Demand play an
important key role in determining the price of the Contract, just like supply and
demand determine the price of houses or bacon in the market.

At the end when you open a futures trading account and start trading, you
are trading an asset such as the E-mini S&P 500, Gold, Crude Oil, etc by
mere LAW OF SUPPLY AND DEMAND, therefore, you do not make any
mathematical calculations or such. What you use is trading charts, like in
stocks, to determine the levels of Supply and Demand, you also read financial
newspapers to develop an understanding of the current economic situations
that might affect the price of the Stock index, Commodity, etc. but this is
secondary as ALL is reflected in the charts.

Futures trading is NOT gauging, for example, or following the 500
components of the S&P 500 or the Eurostoxx 50 (leading blue-chip stock
Index in Europe). Futures trading involves determining the levels at where
buyers are preparing to bid and the levels at where sellers are preparing to
offer.

A futures contract is an agreement between two parties to buy or sell a
specified asset (oranges, oil, corn, etc) of standardized quantity and quality
at a specified future date at a price agreed today (the futures price). This is
the technical definition, What this mean is that you Accept the terms of that
contract.

What is really Important is the fact that, Futures Trading involves the use of
charts, a software and an strategy (the most important aspect) to approach
the markets, in fact, you may be surprise that the MOST technical and
predictable markets in the world are the Futures Markets. Why? Because the
whole world looks at them, thus, traders often leave traces in the charts where
opportunities are vast in a daily basis. It also offers the convenience that the
whole world have liquid contracts so it may help you suit your schedule. If you
are in EU you may trade the US market at night, if you are in the US you may
trade the Chinese or Australian market at night (the mini Hang-seng index or
the SPI 200).

The only downturn: Markets move Faster than in stocks, in fact, LEADING
the stock movements, and that you require at least 5000 Dollars to trade at a
comfortable level.

 

This guest article is written and submitted by Daniel Salas at Futures Trading How To.

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