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Trading Futures ~ Anything But A Walk In The Park! by Ainsley Columbo http://www.fsfuture.com Many people see futures plastered all over the Business section of a newspaper, but few people understand what is a future and what it takes to trade these funny contractual agreements. Understanding futures is mostly left to financial experts and stock traders. However, futures can be less complicated at trading than entering the risky world of stocks. Bear in mind, if you're not on your toes, trading futures can be very nerve wracking. While some experts feel that you should immediately start wading in the shallow end of a future exchange before overloading yourself with the pros and cons of this endeavor, you probably would appreciate some tidbits about futures and some starting pointers: 1. Futures operate as an agreement in a contract. A trade commission, such as the Chicago Trade Commission, approves these contracts. This allows you purchase a commodity at a specified time in the future, at a price agreed upon at that moment. Basically, the contract states that you will purchase a commodity at a set price on a certain date. Common commodities are gold, interest rates, agriculture, currency, and stock indexes. Some people end up trading the contract to someone else prior to the closing date. The commodity itself is not sold until the closing date. When the future is sold, you are hoping your commodity is sold to the real market for a higher price than you bought your future. Hence, you end up with a profit. 2. Future's terminology is a bit confusing and extensive. CBOT stands for the Chicago Board of Trade exchange where futures are traded. Two groups purchase futures: speculators and hedgers. Speculators are mostly the common person who is speculating a future price and wants to buy futures at a lesser price right now. However, hedgers are mostly businesses that buy the future to make sure commodities can be sold at a certain price and no less in the future. Some futures are bought with puts or calls. A put means the buyer anticipates the price in the real market may go down, so he puts a set price on the minimum that the future can be sold down the road. However, a call means the buyer is anticipating the price to go up later on and expects to sell the future at a better price later on for a profit. Via put or call, both buyers ultimately hope to make a profit. 3. Math and analytical skills are needed to trade and select futures. Futures require research and strategic planning so the buyer can somewhat anticipate which way the market is swinging. Different analysis methods are used. With a fundamental analysis, the buyer is reviewing supply and demand. But, with a technical analysis, the buyer is studying market trends and price chart patterns. The trader looks at these analysis results to come up with an equilibrium price. Some experts say you'll never really get a true feel for futures trading unless you give it a try. You shouldn't expect to enter and come out ahead on your first try. First attempts are probably best in a low volatile market such as Eurodollars or options market and buy only at premium. Upon trying your first future trade, you'll find out if you enjoy taking these types of risks. Futures trading is a complicated matter that is often glossed over by many a layperson. However, with some guidance and after trying a few exchanges either with a trading group or online, you may discover its benefits and thrill. |