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Futures Market Trading
Futures market trading involves standardized contracts for buying and selling specified quantities of commodities, equities, or other financial instruments. Futures market trading of these derivative contracts allows businesses and speculators to hedge investment risk as well as profit from market fluctuations. There are futures exchanges located in nations around the world. Each has its own rules and procedures for standardized contracts and procedures for futures market trading. The quantity of grain in a wheat contract or number of shares of stock in stock futures contract may vary from market to market. However, the principles of futures market trading do not vary from market to market. In each locale traders buy or sell the right to take or make delivery of the underlying asset as of the expiration date of the futures contract. As many use futures markets to hedge risk they often exit their futures contract before expiration, either with profits in hand from a profitable future trade or because they have no interest in taking delivery of a herd of live cattle. The trader simply executes the opposite trade in order to exit his position. When a contract is created it is referred to as open interest and when a trader exits his or her position with the opposite trade the open interest and contract disappear.
2. FUTURES MARKET TRADING
INVOLVES STANDARDIZED
CONTRACTS FOR BUYING AND
SELLING SPECIFIED QUANTITIES
OF COMMODITIES, EQUITIES, OR
OTHER FINANCIAL
INSTRUMENTS.
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INVESTING/FUTURES-MARKET-TRADING
3. FUTURES MARKET TRADING OF
THESE DERIVATIVE CONTRACTS
ALLOWS BUSINESSES AND
SPECULATORS TO HEDGE
INVESTMENT RISK AS WELL AS
PROFIT FROM MARKET
FLUCTUATIONS.
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INVESTING/FUTURES-MARKET-TRADING
4. THERE ARE FUTURES
EXCHANGES LOCATED IN
NATIONS AROUND THE WORLD.
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5. EACH HAS ITS OWN RULES AND
PROCEDURES FOR
STANDARDIZED CONTRACTS AND
PROCEDURES FOR FUTURES
MARKET TRADING.
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INVESTING/FUTURES-MARKET-TRADING
6. THE QUANTITY OF GRAIN IN A
WHEAT CONTRACT OR NUMBER
OF SHARES OF STOCK IN STOCK
FUTURES CONTRACT MAY VARY
FROM MARKET TO MARKET.
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INVESTING/FUTURES-MARKET-TRADING
7. HOWEVER, THE PRINCIPLES OF
FUTURES MARKET TRADING DO
NOT VARY FROM MARKET TO
MARKET.
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INVESTING/FUTURES-MARKET-TRADING
8. IN EACH LOCALE TRADERS BUY
OR SELL THE RIGHT TO TAKE OR
MAKE DELIVERY OF THE
UNDERLYING ASSET AS OF THE
EXPIRATION DATE OF THE
FUTURES CONTRACT.
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INVESTING/FUTURES-MARKET-TRADING
9. AS MANY USE FUTURES MARKETS TO
HEDGE RISK THEY OFTEN EXIT THEIR
FUTURES CONTRACT BEFORE
EXPIRATION, EITHER WITH PROFITS
IN HAND FROM A PROFITABLE
FUTURE TRADE OR BECAUSE THEY
HAVE NO INTEREST IN TAKING
DELIVERY OF A HERD OF LIVE
CATTLE.
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INVESTING/FUTURES-MARKET-TRADING
10. THE TRADER SIMPLY EXECUTES
THE OPPOSITE TRADE IN ORDER
TO EXIT HIS POSITION.
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INVESTING/FUTURES-MARKET-TRADING
11. WHEN A CONTRACT IS CREATED
IT IS REFERRED TO AS OPEN
INTEREST AND WHEN A TRADER
EXITS HIS OR HER POSITION
WITH THE OPPOSITE TRADE THE
OPEN INTEREST AND CONTRACT
DISAPPEAR.
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INVESTING/FUTURES-MARKET-TRADING
13. BUSINESSES THAT BUY OR SELL
COMMODITIES, FOR
EXAMPLE, USE FUTURES
MARKET TRADING TO HEDGE
INVESTMENT RISK.
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14. AS AN EXAMPLE, A GOLD MINING
COMPANY MAY BE CONCERNED
THAT THE PRICE OF GOLD
BULLION, AND THEIR PROFITS,
WILL FALL IN THE COMING YEAR.
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INVESTING/FUTURES-MARKET-TRADING
15. THE COMPANY WILL SELL
FUTURES ON GOLD BULLION AS A
MEANS OF GUARANTEEING A
GIVEN PRICE FOR THEIR
PRODUCT.
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INVESTING/FUTURES-MARKET-TRADING
16. LIKEWISE A COMPANY THAT BUYS
A LOT OF GOLD MAY CHOOSE TO
PURCHASE GOLD FUTURES IN
ORDER TO HAVE A SET PRICE
FOR THE COMING YEAR.
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INVESTING/FUTURES-MARKET-TRADING
17. THE SAME WORKS FOR
AGRICULTURAL PRODUCERS
AND THEIR BUYERS.
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19. MANY TRADE THE FUTURES
MARKETS IN SEARCH OF
PROFITS AND NOT IN ORDER TO
HEDGE RISK FOR AN EXISTING
BUSINESS.
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INVESTING/FUTURES-MARKET-TRADING
20. THESE TRADERS PICK AND
CHOOSE WHICH THINGS ON
WHICH THEY WANT TO TRADE
FUTURES.
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INVESTING/FUTURES-MARKET-TRADING
21. THE ADVANTAGE OF THIS
APPROACH IS THAT SOME PARTS
OF THE FUTURES MARKET MAY
BE VERY QUIET AND SOME
PARTS MAY BE VERY VOLATILE.
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INVESTING/FUTURES-MARKET-TRADING
22. IT IS THE VOLATILE MARKET
WHERE FUTURES MARKET
TRADING CAN BE THE MOST
PROFITABLE FOR SPECULATORS.
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INVESTING/FUTURES-MARKET-TRADING
24. FUTURES MARKET TRADING
PROCEEDS IN AN ORDERLY
FASHION BECAUSE OF THE
COMPANIES THAT GUARANTEE
EFFICIENT, ORDERLY, AND
TRANSPARENT TRADING.
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INVESTING/FUTURES-MARKET-TRADING
25. SETTLEMENT OF TRADES IS
TYPICALLY HANDLED BY
INSTITUTIONS THAT GUARANTEE
PAYMENT AND ELIMINATE
COUNTERPARTY RISK FOR
TRADERS.
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INVESTING/FUTURES-MARKET-TRADING
26. BECAUSE OF THE RISK OF A BAD
TRADE EXCEEDING THE ABILITY
OF ONE PARTY TO PAY THE
OTHER, TRADERS NEED TO PUT
MONEY IN A TRADING ACCOUNT
AND TRADE ON MARGIN.
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27. WHEN POTENTIAL LOSSES
APPROACH THE SIZE OF THE
MARGIN ACCOUNT THE TRADER
RECEIVES A MARGIN CALL AND
MUST REPLENISH HIS TRADING
ACCOUNT OR HAVE HIS
ACCOUNT CLOSED AND
CONTRACTS SOLD.
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INVESTING/FUTURES-MARKET-TRADING
28. AN ALTERNATIVE TO DEALING
WITH MARGIN ACCOUNTS IS
TRADING FUTURES OPTIONS. IN
THIS CASE THE TRADER BUYS
PUTS OR CALLS ON FUTURES
CONTRACTS.
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INVESTING/FUTURES-MARKET-TRADING
29. HE OR SHE ONLY EXECUTES A
FUTURES TRADE IF DOING SO IS
PROFITABLE.
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INVESTING/FUTURES-MARKET-TRADING
30. THE EXTENT OF POSSIBLE
LOSSES IS THE COST OF THE
OPTIONS CONTRACT.
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INVESTING/FUTURES-MARKET-TRADING
31. THE LATER ASPECT MAKES
OPTIONS A POPULAR FUTURES
TRADING STRATEGY.
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INVESTING/FUTURES-MARKET-TRADING
