Futures Brokerage Services
Futures refer to future contracts with a definite date and price and usually allow an individual investor to speculate on the future direction of an asset, currency, or a particular financial commodity. Investors use these contracts as tools to make a profit when they expect that the price of an asset will rise or will fall in the future. Futures contracts are traded over short or long terms and can be used for both speculators and hedgers. One of the most popular uses for futures is for speculation.
Speculation refers to the use of futures contracts to attempt to make money by predicting the direction of an underlying asset’s price in the future. For example, an individual may purchase a futures contract today speculating that the price of oil will rise in the future. If they are correct, then they make a profit if the price rises as predicted, but if the price falls as predicted, then they lose their invested amount. Futures contracts can also be used for hedging.
A trader can hedge using two forms: call and put. A call is when a trader holds the stock for a specific time frame and promises to buy a certain underlying asset at a specified price on a future date, while a put is when a trader promises to sell a specific underlying asset at a specified price on a future date. Both ways are used as protection against unanticipated changes in the market, especially with currencies, because the trader does not want to lose all of their cash settled in the event of an unforeseeable event. In the past, a futures broker typically has to act as a middleman for the trader by buying and selling the underlying contract for the trader, but in today’s modern technology, traders can choose to manage their own futures accounts.