What is the Futures Trading for You?

Futures market: What are the benefits and what should traders know about it?

Wikipedia answers that Futures Markets allow you to find this trade Futures Contracts. So what exactly is it? Futures Contracts (also known as Futures Contracts) are legal agreements for the purchase and sale of specific quantities, at certain prices, on specified dates in the future.

Always emphasize contract. Futures Markets trade contracts instead of shares, which makes them different from, say, Stock Markets. Yes, but you don’t buy or sell shares in an organisation. In Futures contracts, investors agree to exchange a particular quantity of an asset or financial instrument.

The workings of commodities are simple to understand. You can easily understand the workings of commodities.

Southwest Airlines however, lost money because oil cost 140 dollars for a barrel. Oil prices used to be cheaper in the past and Futures Contracts could have been negotiated. However, the delivery did not occur until 2007/2008. Contracts to deliver 2011/2012 are already being ordered for the future.

If you say, “That’s all well and good but I do not think this is trading using strategies with a trade strategy.”

Futures Contracts are not without risk. Futures Contracts are designed to reduce the risk of a trade by comparing asset values.

Southwest acquired risk. They would have been more likely to pay if oil prices fell below their agreed-upon price. They were able to reduce the risks of their investments because they anticipated that the price would go higher. The leverage allowed them to earn money.

Companies that produce oil. Their contract with Southwest wasn’t affected because they thought the crude price would go down. As oil price increased, company assumed more risks (and thus lost additional income). You can speculate that the leverage they used may have not been as efficient as possible.

Leave a Reply

Your email address will not be published. Required fields are marked *