What Are Futures?
Futures are standardized and transferable contracts that require a buyer to purchase a stock at a specific sum and within a certain time period in the future. This contract gives the buyer the obligation of purchase, and the seller the obligation to deliver the specific asset traded.
Unlike options, futures contracts obligate the traders to buy and sell instead of just merely giving them the right.
People basically profit from futures by performing speculations in order to provide liquidity and to assume risks for price fluctuations in the market. These valuable functions provide them with substantial returns and potentially large gains. But take note that along with these, substantial risks are involved as well.
How And Why Are Futures Traded?
Futures can be traded in both up and down markets. If a particular trader expects the market to go up, a long trade is usually done wherein the trader buys a contract and then sells it. On the contrary, if a trader believes that the market will go down, and then he will most probably make a short trade by entering a trade through selling a contract and then exiting by buying another contract.
With this system, traders are able to profit regardless of what direction the market trends are going. This is the main reason why most traders are only concerned if the market is moving at all, instead of which direction it is actually going.
In futures trading, instead of taking or making deliveries, a trader merely speculates his position in the market’s volatility by predicting directions of trends. If prices move in the right direction, then the trader would be able to profit. If this does not happen, then a trader would experience some losses.
This particular arena in trading can be very promising, but it involves so many risks as well. But if you are well experienced in trading stocks and have adopted quite an understanding in the different trends, behaviors and strategies that the industry has to offer, then chances are, you may probably do well in this particular playing field.
All of this may sound pretty easy at the moment, but if you are planning to engage in futures trading, make sure that you do your research and prepare yourself with the necessary knowledge and skills to successfully execute transactions.
Along with huge profits possible, there are a lot of risks involved and trading futures without the right background can be very detrimental.