Futures Trading - A Brief Overview
Many people have an idea that future trading of commodity is very hard
. This is a vague idea by those who have just entered the market. Those who get experienced with the passage of time in this type of trading makes a lot of profit.
People think that commodity prices are determined by the rates of future trading. This is not true as commodity prices are determined by the forces of supply and demand. Prices move up if buyers are more and prices go down if sellers are more. Buying and selling orders by investors determine the current price of a commodity in the market.
The major purpose of the future trading is the shift of ownership, and improved liquidity among traders through different risk and moment preferences, for example to a speculator to a hedger. Futures trading are a technique used to eradicate or reduce risks that take place while the prices in the market change.
Futures contract is exchange-traded unoriginal. Future contacts are bought and sold in a futures exchange, to trade certain commodities at a future date, at an already set price.
Hedgers use future trading to minimize the chance of making losses by hedging out of the risk of changes in prices and speculators trade in this market to gain high profits.
Investors can hedge funds against the fluctuations in future markets. Professional risk takers can take advantage of this market as they can easily determine the price fluctuation situations. For example a manufacturer can increase raw materials prices by hedging their funds in the future markets.
Hedge purchase and sale are two types of hedging. An investor can buy and sell commodities at the same time when he is already holding the stock.
Although people might take it as gambling but speculation refers to the current market conditions and trends. It is very risky for new investors as they do not have enough information and resources. New market entrants should keep away from hedging funds.
Future market and commodity trading has become much easier now because of the availability and accessibility of the internet. This trade can now easily be done online with the help of telephone or internet. There are many brokers available who allow trading in future markets. There is a lot of risk involved while trading in the future commodity markets than stock market. One can judge whether to invest in future commodity trading or not.
Investment in future trading can even result in losses. Commodities past performances cannot be used to trade in the future markets.
by: Max Info
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