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Futures Trading: Beginners Guide For Getting Started

Sat Dec 19 2020 10:34
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If you are an aspiring trader or you started trading various assets in financial-markets. Then you may have listened to the term futures trading. What is it and is it like the forex market? Or is it works the same as stock trading? 

No, it is completely different from other trading instruments. When you pick some books about trading and start reading them, you become more confused. Because of all the trading guides, tutorials are not made for beginners.  

Some advanced level tutorials may seem confusing to you. The same thing happens when you want to learn forex or want to learn how to trade any other financial instrument. Here we are going to elaborate more about future trading. 

How the futures market works and how traders get benefit out of it. All the useful information about this type of trading will be shared in this post. So if you find this post helpful then share it with other new traders to help them know something useful. 

What Is Futures Trading? 

We all know that we trade foreign currencies in the foreign exchange market. In the same way, we trade shares and stocks in stock markets or share markets. Commodities are traded in commodity markets. So what instrument is traded in the futures market? 

This one is the first question that arises in a trader's mind when they start learning more about futures trading. As its name states that it is a trading market that predicts the future position of an asset. 

Now, what is that asset? Many assets and instruments are used to trade in this market with high volatility via many trading platforms. 

Definition of Futures Trading 

In the futures market, traders trade on future contracts. Future contracts are created and signed among two traders. This contract predicts the future position of a particular asset. This asset can be any currency, commodity, equity, security, bond, index, or anything else. 

From commodity futures trading to index trading, you have many options in a futures trading account. The futures trading market doesn't have that much liquidity as compared to the currency-market. But still, it has a high volume of trading by traders around the world. 

Major Players of Futures Market 

The major players of the futures market are the speculators. They watch the market and market data. After that, they try to predict the future of a particular commodity. 

They predict how that particular commodity will perform. The whole process of futures trading evolves around speculators. 

Various Instruments In Futures Market 

As we have mentioned above that as a futures trader you have many options in this market to trade. Your broker will help you know more about all these assets traded in online trading. 

Your trading platform will have options like listing all the assets and technical analysis about them. You must adopt different trading strategies for different assets used in future trading. So below we have mentioned how different instruments are traded in this market. 

Commodity Futures 

Commodities are physical assets that are traded in a virtual way on margin and many other ways. You must conduct fundamental analysis for a commodity to trade it in the global market of futures. 

Currency Futures 

World currencies are traded in the most volatile and liquid financial-market called forex. But you can also trade currencies as futures in the futures market. You must make different trading plans if you want to trade forex as futures. 

Index Futures 

Many indexes form around the world to make it possible to check various major financial-markets. Traders can trade these indexes in futures trading. 

Indices and major benchmarks are also known as derivative products used to trade with futures contracts. 

Stock Futures 

Stock trading is the most popular method of trading. But now other than they buy or sell actions you can also trade stocks in future trading. 

Futures On Interest Rates 

Various trading strategies are used to trade futures contracts on interest rates. The major techniques and trading methods are cycle and seasoning trading in this market. 

Advantages & Disadvantages of Futures Trading 

Yes, it is obvious that there are advantages and disadvantages to futures trading. Both of these situations make different sentiment among traders. Some see futures market trading as an opportunity while others find it hard to trade in the futures market. 

So what is the right opinion about trading futures? Is it profitable trading futures or not? Well, this question cannot be answered with a particular answer. Because it depends upon your trading technique, trading plan and how you manage your futures portfolio. 

But we can compare this trading method with other trading markets to find out which one is more beneficial than the other. 

Advantages: 

The major advantage of futures trading is that it has leveraged investments. So when you are investing money in the futures market, you will get benefits due to leverage. Other than this, the trading commissions are high in other trading markets. 

When you are trading stocks, forex, and some other financial instruments. Then you will be charged high by forex brokers or stock market brokers. But there are very few commissions in the futures market. 

Disadvantages: 

Features of the futures market that provide benefits also bring high risk. The most useful feature is leverage in this market, but due to high leverage, there is always a fear. It can be of quick fluctuations in the interest rates, exchange rates, and more. 

Future contracts are signed with an expiry date on them. And, this date sometimes makes the trade non-beneficial for the trader. 

Important Things To Consider In Futures Trading 

Many things are there to consider as a futures trader. You must know the duration of the various futures contracts that you are going to trade. Along with it you must know what is risk tolerance and plan your risk management strategy. 

Future career contracts have three different durations. You can choose any duration period from one month to three months.  

The one-month duration is known as near, the two months duration is middle and the three months duration is known as a far month duration contract. In futures trading, market sentiments and trends are very important. 

You must follow the market trends. Before you buy and sell any asset, you must check that it has bearish or bullish market sentiment. 

Conclusion - Futures Trading

Thousands of features are there that make futures trading a lot better than the other ways. If you consider all the above important things. Then you can become successful at trading futures contracts. 

Thousands of traders start trading futures after they fail at other trading markets. It is not that hard as the rumors are telling about them.  

If you apply fundamental techniques and conduct proper analysis in this market, you will find it very useful for you. Many features are there to love in this amazing trading market. Whether you are a new trader in the world of trading or you are an expert trader. 

You can choose this segment to start your career in trading. Don't worry about the deep research and technical points of this market. This is because many trading tools are available there to help you trade futures in a profitable way. 
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