Futures
Futures are contracts to buy or sell a specific underlying asset at a future date. The underlying asset can be a commodity, a security, or other financial instrument. Futures trading requires the buyer to purchase or the seller to sell the underlying asset at the set price, whatever the market price, at the expiration date.
Futures trading commonly refers to futures whose underlying assets are securities in the stock market. These contracts are based on the future value of an individual company's shares or a stock market index like the S&P 500, Dow Jones Industrial Average, or Nasdaq
In futures trading, underlying assets refer to the actual financial instruments or physical commodities that a futures contract is based on. When you buy or sell a futures contract, you are agreeing to trade the underlying asset at a future date, but at a price that is agreed upon today.
The value of a futures contract depends on the price movements of its underlying asset. Examples of underlying assets include:
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Commodities Such as gold, oil, wheat, or coffee.
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Financial Instruments Like stock indices (e.g., the S&P 500), currencies (e.g., the U.S. dollar), or bonds.
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Other Assets Such as interest rates, cryptocurrencies, or real estate indices.
Futures CFDs
Futures CFDs (Contracts for Difference) allow traders to speculate on the price movements of futures contracts without needing to own or manage the actual futures contract. Futures are agreements to buy or sell an asset (like commodities, indices, or financial instruments) at a specified price on a future date. With Futures CFDs, traders can benefit from these price movements without committing to the contract's full terms.
Futures are one of the most popular forms of CFDs. Futures CFD are priced directly from the underlying futures markets, with commissions, financing charges and dividend adjustments all built into the spread itself.
How to Earn
To earn in futures trading, investors need to focus on market research, timing, and risk management. Start by understanding the underlying asset and the factors that drive its price movements. Use technical analysis, such as charts and indicators, to identify trends and potential entry and exit points.
Timing is crucial—buy low and sell high, or sell high and buy low if you’re taking a short position. Leverage can amplify gains, but it also increases risk, so only invest what you can afford to lose. Additionally, always use stop-loss orders to limit potential losses and protect your capital. By staying informed and disciplined, you can capitalize on price movements and earn profits in futures trading.
With Futures CFDs, you can earn by speculating on price movements without owning the actual futures contract. Futures CFDs track the prices of the underlying futures markets, and all charges—like commissions and financing—are included in the spread. This setup lets you take long (buy) or short (sell) positions with the potential to profit from both rising and falling prices. Futures CFDs also offer leverage, so you can control a larger position with a smaller investment. However, using stop-loss orders and managing your risk carefully is essential to protect your gains.
Terms to Know
Futures Margin - The money that traders must deposit in their futures trading account to open and maintain a position in the futures market. The futures margin ensures the trader can meet any obligations if the trade does not go as expected. The futures margin amount is usually a percentage of the total contract value but can change based on the exchange and the contract that is traded.
Lot size - A lot size refers to the minimum number of units that have to be bought/sold in a futures contract.
Underlying Asset - The financial instrument or commodity that a futures contract is based on, such as crude oil, gold, or a stock index.
Speculation - The act of trading futures contracts to make a profit from price movements, rather than use the contract to hedge against risk.
Futures Expiration – The last trading day of the futures contract.
Expiry Date - The predetermined date on which the final settlement of the contract takes place in the futures market. Put simply, this is the date on which the two parties are supposed to fulfil their obligations, i.e. the buyer of the contract is supposed to buy the underlying asset, and the seller must deliver the underlying asset.
Stop-Loss Order - An order placed with a broker to buy or sell once the asset reaches a certain price, used to limit potential losses in a futures position.
Something nobody tells anybody……
Futures trading is often touted for its potential to offer high rewards, but several aspects may not be immediately obvious to newcomers. Leverage can amplify both losses and gains. Futures trading involves significant leverage, allowing you to control large positions with a relatively small amount of capital. While this can lead to substantial gains, it also means that losses can exceed your initial investment.
If the market moves against your position, you may face margin calls, requiring you to deposit additional funds to maintain your position. Failure to meet margin calls can result in the forced liquidation of your position at a loss, which can be financially and emotionally stressful.
Futures trading involves a steep learning curve, including mastering technical analysis, understanding market dynamics, and developing trading strategies. Success in futures trading often requires extensive education and experience, and new traders may face a challenging period of learning and adaptation.
