Futures trading started out originally as a way for farmers to keep the prices of their crops reasonably stable. It has grown to mean a lot more now, and anyone with the right information, or understanding, can stand to make money with futures trading. This is not a way to earn money for the faint hearted though. You really do need to know what you are doing. However, it is a way to earn a lot of money in a short time, provided you do know what is going on, and you stay lucky, or at least, if you make the right calls. Futures markets are where buyers and sellers meet. Prices become established depending on the supply and demand at the time. If the buyers outnumber the sellers, the price will increase, and if the sellers outnumber the buyers, the price will go down. This allows the market to manage the risks involved with the prices. Futures Option Trading is one source that explains the system. Futures trading practices comes in two basic flavors: hedgers and speculators. The hedgers try to avoid the inherent risk involved in the ever-changing prices. They hedge their bets, effectively to keep things on an even keel where possible. Speculators speculate on the price by predicting what they believe it will be. They buy commodities like corn, gold, silver or oil, and they make a profit by speculating on the future price, whether it will go up or go down. They don't actually take delivery of these commodities. They buy them "on paper" and sell them the same way. They have no use for the actual commodities, just the potential profits they can provide. In simple terms, if you suspect, and if the predictive tools at your disposal, suggest that the price of a commodity will go up, you could buy a call option, which is the right to buy, and hold it until the price does go up (assuming it does). When you feel it may have increased as much as it is going to, you could then sell the option and make a profit. There is a lot more involved than that, of course. One way to minimize your potential losses is to put a stop loss on the trade. This is a mechanism that prevents your overall loss in any one trade being too large. In a sense, you are guaranteed that your total losses, assuming you make a loss, will not be more than a certain, hopefully affordable, amount. If you feel that you would like to actually try futures trading, you may find companies like GNI Touch Futures , MF Global Direct and Futures Trading System useful. Most of the companies where you can carry out futures trading will allow you to trade virtually. This is a great practice platform where you can use real commodities and their real prices and try to make a profit trading. You can start with a virtual bank balance and try to increase it over time. Of course, no real money is involved, and if you will a million playing virtually, you can't cash in, but you will be able to see how it works. You will also know that if you had been using real money, you would now be much richer. Don't forget, however, that you can lose money too with futures trading. |
Saturday, October 15, 2011
Futures Trading
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