Understanding Futures Markets
When speculating in futures, many people have earned and also lost a lot of money when trading those types of markets. However, futures markets are one of the few areas where someone with a minimal bank account can literally earn a great deal of money. The explanation for this is because futures markets are quite leveraged. Highly leveraged investments have their advantages when you are on the appropriate side of the trade, but there is the other side of the coin in that you can and will lose large amounts of money just as hastily when you are incorrect. Because of the high leverage and the fact that there are a great deal of pushy and inept brokers out there, futures have gotten an unjustly bad name in the trading scene.
However, despite the fact that futures have a really bad reputation, if respected and traded properly, futures are great investment vehicles that can afford someone with small starting capital the chance to make very large sums of money in a very short period of time. The key is having the right strategy and understanding the market you plan to trade very well. This can only come from experience and the right trading strategy. Many small players have gone on to make their riches in the futures market, and unless you are very young or live under a rock, you have probably heard the story about how Hillary Clinton made $100,000.00 USD in cattle futures in a short amount of time on a very small investment.
For those that are unfamiliar with futures, they are standardized and transferable contracts that require a buyer to purchase a contract at a specific sum and within a certain time period in the future. Unlike stocks, futures contracts have a limited life and will expire at some point in the future. These contracts give the buyer the obligation to purchase, and the seller the obligation to deliver the specific asset traded. A futures contract obligates a trader to both buy and sell a commodity, but not necessarily in that order. One of the main purposes of the futures markets is to provide liquidity and to assume risks for price fluctuations in the differing commodities. These valuable functions provide investors or speculators the opportunity to earn substantial returns and potentially make large financial gains. Remember though, these speculators also take on substantial risks when investing in these highly leveraged markets, so they can lose money just as easily if they are wrong.
Futures’ trading has become very common in recent years as a result of day trading. In the early days, futures were started predominantly for agriculture commodities, but in today’s trading world, you can find futures for almost anything, along with financial products, such as bonds and stock indexes. The mini indexes are some of the most popular and liquid futures markets in the world today. The greater part of futures traders have no interest in actually owning the commodities in which they are speculating, and they do not have to own the commodity to actually sell it either. These traders are only speculating on price direction and if they get the direction of prices correct, they make money. If wrong, they lose money. The leverage makes these winning and losing speculations exceptionally lucrative, or extremely costly, so make certain that you comprehend what you are doing in advance of investing in any futures products.
Futures are a great investment tool for those that choose to invest in Day Trading. If you are interested in learning to trade futures, you can visit our website where we specialize in Price Action techniques.
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