Futures investing basics. Educational videos. Investing Basics: Futures Gain a better understanding of futures and contract specifications like tick size, contract size, delivery, and margin requirements. Futures Market Participants Learn how the major players in the futures market—producers, hedgers, and speculators—buy and sell futures contracts in an attempt to secure optimal prices.
Informative articles. Investor's Manual: What Are Futures? Fun with Futures: Basics of Futures Contracts, Futures Trading What futures markets do over the short and long term can tell investors a lot about what's going on in the world how much it will cost to fill your gas tank before your summer road trip, for example.
Hedging with futures enables you to control your exposure to risk in an underlying market. For example, if you own shares in companies on the FTSE and are concerned about their value dropping, you could short a FTSE index future — the profits from which would hopefully offset a proportion of your share position losses. If you had current short positions on the other hand, you could go long on an index future in case the market rises, with the idea that your long profits would offset your short losses.
Speculate on both hard and soft commodities including gold, silver, wheat, corn and oil. Trade on the value of different bonds rising or falling, including German, UK and US government bonds. Futures trading works by using spread bets and CFDs to speculate on the price of an underlying futures market. CFDs and spread bets can be used to go both long or short, meaning that you can profit from markets that are rising as well as falling — provided your predictions are correct.
With various futures markets to choose from, you should establish which one is most-suited to your individual trading style. Some indices — the Germany 40 for example — experience higher volatility than others, and could be better suited to short-term day traders. Other markets, such as gold or silver commodity futures are often preferred by traders who have lower risk appetites and enjoy markets with lower volatility.
Our spreads are among the lowest in the industry and we have a diverse futures offering, which includes the most popular indices, commodities and bonds on the market. Going long means that you are speculating on the value of a future increasing, and going short means that you are speculating on its value decreasing. If you think that the underlying price of an index, commodity or bond future will increase based on your own fundamental and technical analysis, then open a long position.
If instead, your analysis suggests that the underlying market price will fall, then open a short position. To place your first trade, go to the IG trading platform and select a market.
Before you open your position, you should consider adding stops and limits to your trade. Stops and limits are highly recommended tools for managing your risk while trading futures. A stop order will close your position automatically if the price moves to a less favourable level, while a limit order will close your position automatically if it moves to a more favourable one. IG offers normal, trailing and guaranteed stops , 1 and you can set your stops and limits directly from the deal ticket.
If they are, you might want to close your trade after having achieved a satisfactory profit. These will include your spread and any other costs or charges. Alternatively, if you think that the price of oil is going to fall, you could go short with a spread bet or CFD on the oil future.
In both scenarios, your position would be closed automatically in June — but you could close it before if you wanted. The months for a futures contract will vary, and the example given here which uses June is for explanatory purposes. You should check the expiry of a futures contract before you open a position. Futures in trading refers to a futures contract — an agreement between two parties to trade an underlying market at a predetermined price on a specific date in the future.
With IG, rather than entering into a futures contract directly, you can speculate on the price of futures rising or falling with spread bets and CFDs. Futures are priced according to the spot value of their underlying market, plus any spread or commission that you pay a broker for executing your trade.
The forces of supply and demand also play a role in determining how the price of a futures contract will move, with higher demand and lower supply causing prices to rise, while lower demand and higher supply will cause prices to fall.
Margin in futures trading enables you to put down a small deposit to open a spread bet or CFD trade, while receiving much larger market exposure.
However, you should remember that when trading with margin, your end profit or loss is determined by the full size of the position, and not just the margin required to open it.
Futures contracts are different to options contracts because they obligate both parties to exchange the underlying for the agreed upon price at expiry. An options contract on the other hand, only obligates one party to buy or sell if the other party exercises their side of the agreement. They would only do this if they feel the market has moved in their favour.
The spot price is the current underlying market price that you would be able to trade at if you opened a position today.
Interested in opening an account? Contact or newaccountenquiries. At the same time, it also allows speculators to profit from commodities that are expected to spike in the future. While futures and options trading in the stock market is not uncommon for the average investor, commodity training requires a tad more expertise. Derivative trading requires you to understand the movement of the market. Even if you trade through a broker, there are some factors that must be kept in mind.
Futures and options assets are heavily leveraged with futures usually seeing a harder sell than options. You are more likely to hear about the profit you can make in the future by fixing an advantageous price. What you are less likely to hear is that the margins can work both ways. You may be forced to sell at less than the market price or buy at more than the market price.
In other words, your likelihood to make a profit is theoretically as good as the likelihood to make a loss. While options may seem like the safer option, as discussed above, you are far more likely to defer trade and lose the premium value, hence, making a net loss. Your risk appetite is the amount of risk that you are willing to take in order to meet your objectives.
When trading in derivatives, the underlying motivation is to reduce the risk by fixing the price in advance. In practice, a trader will always try and go for a price that will offer healthy gains. But one of the maxims of investments holds true in this case as well, the higher the reward, the higher the risk. In other words, think of the risk you will be willing to take when agreeing to any price.
For seasoned traders, one of the oft-used tools to control their trade is setting up stop-loss or take-profit levels. A stop-loss is the maximum amount of loss that can be undertaken while a take-profit is the maximum profit you will settle for. While the latter may seem contrary, a take-profit point allows you to fix a price where the stock can stabilise before falling.
These are the twin price points within which a trader operates. While it may seem that we are hedging our bets and ensuring healthy margins on a futures and options trade, you must keep in mind that these margins are themselves subject to the movement of the market. In a volatile market, if your trade is making a large notional loss, you will be required to post higher margin quickly, else risk the broker squaring off your trade and losing your existing margin.
Derivative trading does not require a demat account. It is often seen as a more economical alternative in terms of cost price. There are additional costs that include stamp duty, statutory charges, goods and services tax GST , and securities transaction Tax STT. But the real cost hike comes from the frequency of trade. Derivative trade is quick with multiple transactions in a short time, which multiplies the cost of your overall trading. Hence, it is always advisable to keep a check on the number of transactions against the gains you are making.
Future and options are often seen as more mysterious cousins of equity trade. These are fast-moving trades where the margin can fluctuate daily. Unlike equity, which attracts long-term investors, futures and options are meant for traders who are looking for quick returns.
If managed in a planned manner, they allow you to protect yourself from a volatile market, while slowly increasing your gains. Trading futures and options is not rocket science, but it does need a level of understanding before you dive in. It can be a great tool to hedge your bets and save you from market volatility.
Alternatively, as a speculator it can be a medium to play the volatility to make outsized returns, but that approach comes with its own substantial risks.
Kanika Agarrwal is the co-founder of Upside AI, a fintech start-up focused on using machine learning for the investment sector. She has over 11 years of experience in finance and investing. Aashika is the India Editor for Forbes Advisor. Her year business and finance journalism stint has led her to report, write, edit and lead teams covering public investing, private investing and personal investing both in India and overseas.
Select Region.
0コメント