Futures Trading

Futures Trading Introduction

Futures trading applies many of the same trading concepts associated with investing in the stock market however there are many differences as well. The goal is to make a profit from buying and selling however when futures trading you do not actually ever own anything. Futures trading is also known as commodities trading and futures traders speculate on the future direction of the price of a particular commodity. You don’t ever own commodities like you would own stock and commodities are not traded on the stock market. There are actually separate futures markets where both commercial producers and commercial consumers participate. As you learn trading and investing in the futures markets you will learn that the purpose of the futures market is to eliminate risk from changing prices for these market participants.

Some of the most popular futures markets where commodities are exchanged include the Chicago Mercantile Exchange, the Chicago Board of Trade and the New York Cotton Exchange. There are also a variety of the types of markets that the beginner investor can choose to invest in when futures trading. These markets are explained below.

1. Energy futures – these futures take into consideration the prices of oil and gas as well as other sources of fuel.
2. Agriculture – this is one the largest futures markets and includes commodities such as corn, wheat grass, soybeans, and pork bellies, just to name a few.
3. Currencies – this is perhaps the largest of the futures markets and it refers to the exchanging of currencies for various countries. The forex market is also referred to as the foreign exchange market.
4. Food – these markets vary from sugar and coffee, to orange juice and other types of foods.
5. Interest rate futures – this focuses on financial transactions on bonds and on interest rates themselves.

When futures trading, there are speculators and producers that need to hedge their risk from future price changes. The speculators are there to provide liquidity and they deal directly with the physical commodities. They are there to maintain an orderly market that ensures that price changes are small from one trade to the next.

Today’s article provides a trading education as it relates to futures trading however there is a lot more involved. When you learn to trade futures you must have a clear understanding of the market dynamics as well as the trading strategies involved.