Futures trading is a high-risk financial market that involves the buying and selling of contracts referencing the price of a commodity at a specific date in the future.
The primary benefit is that it allows an investor to buy and sell commodities at a fixed price today, regardless of what the market price might be tomorrow. If you’re interested in becoming a futures trader, this guide will give you all the information you need to get started.
Making Money in Futures Trading – Here’s How
Trading futures is similar to trading stocks, bonds, or other securities. You can buy or sell a futures contract at any time and you can profit if the price of the contract increases or decreases.
The amount you make depends on the “margin” required to own the contract, the “time value” of the futures contract, and the amount the price of the contracts changes. Trading futures can be done on a “cash” or “margin” basis.
If you are cash trading, you do not have any margin and do not have to put up collateral. This is the option that individuals trading with a small account would probably choose because it doesn’t require a lot of money to get started.
If you are trading on margin, you have to deposit collateral. You can buy more contracts and make more money when the price goes up, but it also means you are risking a larger amount in case the price goes down.
Investing in a Commodity for Its Future Value Instead of Just Current Value
A lot of people end up losing a lot of money when they trade futures because they get caught up in the daily fluctuations in the price of a commodity. Instead of trading commodity futures for a quick profit, successful futures traders invest in a commodity for its future value.
This means traders will look for long-term trends in the commodities market, like an increase in demand for a certain product that will drive the price of that commodity up. This strategy requires a lot of research, but it can be a very effective way to make money trading futures.
Strategies for Successful Futures Trading
First, find a commodity you understand and have an interest in. This may seem like a no-brainer, but you can’t make money in commodities if you don’t have a basic understanding of supply and demand and the factors that will impact the price of a commodity.
Use futures trading platforms that offer analysis and advice. There are plenty of trading platforms that will give you advice on the best commodities to trade and how to trade them. Make sure the platform you’re using also has educational resources, like videos and articles explaining how the market works and how to become a successful futures trader.
Lastly, you should diversify your investments. While you want to find a commodity that you think will increase in value, you also want to make sure you don’t put all your eggs in one basket. Just like with any other type of investing, it’s important to diversify the types of commodities you trade so you don’t put all your money in one market.
