How to trade in futures market place?
byon 07-15-2012 at 05:55 AM (167 Views)
"The futures market provides the opportunistic investor the choice of using small amounts of their personal money to manage large amounts of goods, including gold, currencies, and agricultural commodities.
A futures contract is a legally binding contract to deliver, if you are selling, or to take delivery, if you are purchasing, of a particular commodity, index, bond, or currency at a predetermined date or price. A futures contract can consist of everything from a common size amount of wheat, oil, or a countrys currency. The amount and date of delivery of the contract are specified, although in practically all situations delivery is not taken as contracts are bought and sold for speculative or hedging purposes.
Futures are utilized by each these who use the actual commodity and by investors. For example, in May a farmer plants some corn, but doesnt know what corn will be selling for in November. He can sell a futures contract for November and "lock in" the future promoting price these days. On the other hand investors can buy a futures contract if they believe the price of a security is going to appreciate, or they can sell a futures contract if they believe the value of a security is going to decline.
Futures are frequently thought of in the same category as possibilities. Even though they are both derivatives, in that they derive their value from some base security, there is 1 very critical difference. While alternatives give the correct, but not the obligation to buy or sell the underlying security, a futures contract is a legally binding obligation to purchase or sell that identical commodity. Thus, while options limit your loss to the price tag paid for that solution, futures trading could lead to a loss of your entire investment and far more to meet that obligation.
One more difference among the futures and the equities markets entails the use of word margin. Although the contract sizes for currencies are big (often the equivalent of over $100,000 for a single contract), an investor does not have to acquire or sell a full contract. Rather, a margin deposit on the contract is maintained, which is actually a "good faith" quantity of funds to guarantee your obligations to the full amount of the futures contract. Minimum margin requirements vary by broker, but are usually only a fraction of the contracts total value, and are not related to the actual price of the contract involved.
Futures trades should be created by way of futures brokers, who operate both total-service and discount operations, and may be associated to the stock brokerage that you currently deal with. Nonetheless, well-known discount stockbrokers do not handle futures contracts. <a href=http://www.how-to-buy-silver-safely.com/2009/06/disadvantages-of-silver-investments/>spot silver[/url]"