Understanding the Basics of Futures Trading

futures trading

Futures trading involves buying and selling contracts for a commodity, currency or interest rate. These contracts are standardized and face an exchange (a stock exchange, for example). Source onlinefuturescontracts.com

Investing in commodities through futures is an efficient way to diversify a portfolio because they offer access to products that are hard to find elsewhere. Traders can also use futures to hedge their portfolios against volatility in the market.

How to Use Technical Analysis in Futures Trading

There are two main types of futures traders — hedgers and speculators. Hedgers are concerned with ensuring they get a price on their output, while speculators are interested in making profits by predicting how the market will move.

Hedgers typically buy and sell futures to protect themselves against changes in the prices of their goods, while speculators make profits by opening a derivative contract related to an asset they do not have direct exposure to or intent to take delivery of.

In addition to the standard buy and sell orders, futures traders can place a Market-on-Close order (MOC). This option lets you lock in your profit at a specific time by placing your order at a certain price.

Brokers will then route your order to an exchange or to their warehouses for execution. The broker will then send you an email telling you the results of your order.

Before you start trading, it’s important to have a trading plan that includes entry and exit strategies as well as risk management rules. Having a plan will help you avoid mistakes and stay on track when learning how to trade futures.

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