Futures Trading For Beginners
In forex trading, a future contract is a legally binding agreement to sell or purchase something at some future date and time, between parties not necessarily known mutually to each other. The tradable asset traded is typically a currency or other financial instrument. The seller of the asset pays for it, while the buyer in turn is paid by the seller for the purchase price of the asset. The term “future” is used here to describe the date on which the contract was executed, or the time it is estimated that the contract will last.
Futures contracts have been used throughout the history of investing, as both a way of hedging against fluctuating prices and as a method for creating income through the appreciation of the underlying assets. They are also used in options and futures trading, as well as other types of investing like commodity and bond trading. For the investor, the purpose of a future contract is to provide them with a way to protect their interest in stock, portfolio, bonds, commodities and other long term assets from price fluctuations due to factors outside of their control. For the financial institutions and companies that purchase the futures contracts, the purpose is to protect themselves from excessive losses due to unpredictable price movements due to weather, infrastructure, or national economic conditions.
Investors use the futures markets as a way to participate in global market activities without having to deal directly with the producers of the goods or services that they wish to invest in. The major benefit of this structure for investors is that they are able to exercise direct control over the trades and can set their own margins, as well as stop and open positions. This ability to exercise control over their trading activity gives investors an added advantage over other retail traders. Because brokers do not represent the actual traders, they benefit from the profits made by the major players in the markets, as their fees are reduced by the brokerage firms if they trade in the same fashion as these traders.