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December 14, 2007
Trading Futures
Trading futures is also known as trading commodities. When you trade futures, you are speculating on the future direction of the price for the commodity that you are trading. You don’t actually own anything like when you buy stock, but instead you are betting on whether the price of the commodities that you are trading will go up or down. Trading futures is the trading of futures contracts that provides the owner the power to trade the commodity at some point in the future, for a fixed rate. Typically the rate is the price rate of the contact creation. Future trades are similar to stock and options trading because they are traded in precise futures commodity trading markets.

There are three types of people who trade futures.  They include the Floor Traders, the Hedgers, and the speculators. When trading futures it is important to know the difference between these three types of traders.  The floor trader buys and sells from their individual accounts directly on the trading floors of the futures exchanges. They are responsible for giving the futures market the liquidity that is needs in order to function. The Hedgers are companies, or individuals, that trade in the futures market so that they can establish a known price level in order to satisfy a future need to buy or sell the underlying futures commodity. They are the actual issuers of the futures contracts. When trading futures, hedgers take action in efforts to protect themselves against the risk of a price change that is unfavorable to them. Speculators act more like stock traders in that they try to make a profit from the price fluctuations of the underlying commodity. They include all types of futures trading including futures day trading, futures swing trading, and futures position traders. There is always someone that is taking the opposite position against the speculator when trading futures.

This type of trading is becoming more popular each day. There are several factors contributing to this popularity. One reason is that it is relatively easy to set up and account and conduct online futures trading. Other reasons that trading futures is becoming more popular include the low transfer rates imposed by futures brokers, the requirement of relatively small initial investments, and the liquidity of the market due to a high volume of trades conducted each day. The main reason goes back to the ease of setting up an online account to trade in that the simplicity of this type of trading allows anyone to trade online that has access to the internet.

When trading futures there are basically two types of contracts. They include a financial futures contract and a commodity futures contract. Financial futures contracts include contracts that end in cash settlement. They could include mutual funds, bonds, treasury notes, and the like. Commodity futures contracts actually end in physical delivery. They could include agricultural commodities such as wheat, oats, rice, or they could be animals, crude oil, metals, etc. When trading futures, no one really ever has to take, make, or deliver the underlying product that the contract represents. Most of the time, successful traders actually offset their position at some point in time before the date of the contract is due.

When trading futures, there are two types of commodity brokers that are monitored by the federal agency Commodity Futures Trading Commission (CFTC).  These two brokers include fa ull-services broker, and a discount broker. The brokers will charge a fee for maintaining trader records, and the fee depends on the trading frequency, trading volume and the account status of the futures trader. Regardless of the type of broker you use when trading futures, they are responsible for maintaining the trader’s margin deposits, their money balances, and the open futures and transaction completed.

There is inconsistency in futures trading in that most people think of it as a way to get-rich quick. It is true that many investors do get rich as a result of trading futures, however, most investors end up losing money. Trading futures is a practice that requires experience, training and extensive knowledge of technical analysis.  If you are willing to put in the time and practice necessary to educate yourself in trading futures, you should be well on your way to success!

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