Futures trading is a great way to diversify your financial portfolio. The futures market is quite different from the regular stock market.
Futures markets lack trading restrictions and are available to trade at any time of day. Also, futures don’t require the minimum $25,000 account that day trading stocks do.
Keep reading to find out more information about futures trading.
In the futures market, you trade futures contracts. A futures contract is an agreement that a contract for an asset will be bought and sold for a set price, on a set day, in the future.
These contracts are for assets such as commodities, currency, or indices. An individual can buy a futures contract for a certain price and the seller agrees to sell it to them for that price on the contract expiration.
One example is that of a grain farmer. A grain farmer may sell a futures contract to guarantee that they are paid a certain price for their commodity. When the contract expires, both buyer and seller are obligated to fulfill their end of the contract.
The farmer has locked in the price he needs for his grain, and the buyer has guaranteed that they only have to pay a certain price for the grain.
Most futures contracts, however, are sold before the contract expires. Both day-traders and longer-term traders use futures as a way to profit from the market. They do not use futures contracts as a way to physically obtain a commodity.
Unlike a grain farmer, they predict the price of a commodity, decide to buy it for that price in hopes that they will be able to sell it later for more.
They use fluctuations in the market to sell their contracts at a later time for profit. So if they originally bought the contract for $3.50 and sell for $3.75, they made a profit. The market is constantly shifting, and the constant flow of transactions is what causes the fluctuations.
If you feel like trading in the futures market is right for you, it’s easy to get started. The best way to get your feet wet is to open an account through a broker that supports the futures market you are wanting to use like this service.
Brokers will ask you questions concerning your investing experience and financial well being. Brokers use this information to regulate the risk they allow their clients to take on.
They can also be a great font of information. Some may provide research and advise certain trades to help you make the right choices. These brokers are great options for those who are just beginning.
Like mentioned earlier, there are little to no regulations on the futures markets and there is no commission or fee structure.
Futures trading is a great way to diversify your financial portfolio. The relatively small commitment makes it a great option for all different types of investors.
Whether you are just getting started or have years of experience, futures are for any level of experience.
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