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November 13, 2009
Futures & Options
In today’s article we discuss futures & options in order to get a basic understanding of both markets. Please continue to further your trading education once you have finished reading this article, to see if futures & options are for you.

Futures markets
There are numerous futures markets including, but not limited to, interest rate futures on financial transactions and bonds, currency trading such as the United States dollar, the Japanese yen, and the British pound, energy futures on oil and gas, metals, such as gold and silver, and the food sector on items such as sugar, orange juice and coffee. Each market has consumers and producers who hedge their risk from futures price changes. Speculators provide liquidity to this market and they do not actually deal with physical commodities. An orderly market is maintained by the producers since the price changes from one trade to the next are relatively small.

When futures trading, investors don’t actually own anything but instead they speculate on the futures direction of the price of the commodity they are trading. Additionally, they must make sure that they deposit sufficient capital in their brokerage account in order to be able to pay losses if their trades lose money.

Options Markets
Understanding options means to understand what options trading is first. Options are an agreements between two parties in which one party agrees to sell a sock to the other party within a certain time frame and at a certain price. You don’t actually own anything when trading options, but instead you have the right to trade. To understand what this means, you have to understand what a “put” and a “call” are. “Puts” are agreements to sell, and “calls” are agreements to buy. Both types of options contracts define the conditions in which the trader will either buy or sell a particular stock. The holder of the option is able to let the options order expire without investing any further or they can go ahead and buy the stock as agreed to.

There is a lot more to understanding futures and options. Please continue to learn about options and futures trading and find out if these markets are the market for you. You should first ensure that you have a thorough education of the stock market in general. Good luck!

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