The futures market is essentially a wholesale market. It is comprised of many common, household items but the difference is that
futures trading is done in large bulk. For example, when you go to the grocery store to buy sugar, it is usually in five-pound bags.
When trading futures, you can buy sugar too, except that it is for 112,000 pounds! Here's another example. When you gas up your car
or truck, you pay for gasoline by the gallon and maybe purchase 10 or 20 gallons. In the futures market, you can also buy unleaded
gasoline but the standard transaction size is much larger; 42,000 gallons! That's a lot of gasoline!
Because of the large size of these "wholesale" transactions, very few people ever trade futures with the intention of actually
using or consuming the item if they bought, or delivering the item if they sold. There's just too much of it! The great majority of
futures traders buy and sell only to profit from price movements. They are called speculators and they trade futures
in search of high-yield investing opportunities. Once you understand how to trade futures, you can do the same.
So what are some of these futures markets? Well, the oldest and perhaps best known are the grains like corn and soybeans. Then
there are the meats such as live cattle and yes, pork bellies. There are contracts on the energies such as crude oil and
unleaded gasoline, and on precious metals such as gold and silver. The softs include cocoa, coffee, sugar, cotton and orange juice.
Finally, there are financial products such as bond futures, equity index futures and currency futures. Any one of these markets
can provide an opportunity when trading futures.
In addition to the wide selection, there is another great advantage to trading futures: You can sell before you buy.
Most investors are comfortable with the typical investment pattern of buying first and selling later. While useful during a bull market,
you typically just have to sit on the sidelines if prices are falling. When trading futures, though, you can sell first and later buy back.
Selling first is possible with futures because when you sell a futures, you're not required to deliver anything.
Delivery is required only when the contract reaches expiration which may be weeks or months down the road. As long as you
buy back the contract before its expiration, then you will cancel this obligation to deliver. And if prices have fallen in
the interim so that you buy back at a lower price, then you have made money!
Perhaps the greatest reason why an investor may want to learn how to trade futures is because of the high leverage available. Leverage
means that to buy or sell a futures having a
contract value of say, $100,000, the futures trader need only hold a small portion of this value in a futures trading account, maybe
$3,000 or so depending upon the contract. Because of leverage, the trader gets a big bang for every buck. In the example above, a
one percent change in the market value of the futures contract would be equal to $1,000 or 33% of the margin. Leverage is what makes
trading futures risky and is described in greater detail in Understanding Futures at right.
Your next step...
All beginning futures traders should start with a solid education. Trading futures is not appropriate for everyone so it's important
to first decide if this type of trading is appropriate for you. You may want to watch our
free one-hour proprietary video, Futures
Trading - A Plain-Language Video Introduction. Designed for someone with little prior industry exposure, this topical video will
carefully navigate you through some of the more pertinent aspects of futures trading.
After that, we recommend our free series of
Futures Trading Videos.
In the comfort of your own home, you'll have over one hour of lectures covering 8 introductory topics on futures trading all narrated by the President
of World Link Futures. Tailored for the beginning futures trader, you'll learn trading futures basics such as how to read a bar chart and common
order types, how to calculate profit and loss on a futures trade, how margin works and tips on risk management. You'll even see how to
perform a regulatory background check on a futures broker or other industry participant.
Before you consider trading futures and/or options on futures with hard-earned dollars, we recommend that you start by
paper trading. This futures and options
simulated trading account is free and a useful educational tool especially for the beginning futures trader.
The professionals at The Futures Training Division of PFGBEST who provide this futures and options paper trading account are not only
willing to spend the time in helping the beginning futures trader, but they can also help you
set up a real account when you're ready, making the transition to actual futures trading easy and stress-free for you.
What´s in store for 2012? See what some of the industry´s top research analysts and trade strategists have to say about
market factors in 2012. Request this
free, hot-off-the-press 2012 Outlook Report.
Have a question about how to trade futures? Then speak to a futures trading professional. They'll help you decide if trading futures is right for you.
Go ahead and Talk to a Futures Professional in the box at right.
Trading futures should not be done impulsively but rather, it must follow the rules of a well-defined trading system. A trading
system specifies when to get into a trade, either long or short, and when to close a trade, either at a profit or at a loss.
A trading system must be appropriate for you.
Every futures trader has their own tolerance level for risk and amount of available risk capital and the trading
system needs to be consistent with these parameters. For more information on trading systems, request our free
brochure, How to Invest: A Beginner's Guide to
Leveraged Investing.
Developing a futures trading system from scratch is a considerable undertaking. To help get you started, we designed a futures trading course
especially for the beginner called,
Commodity Trading as a
Second IncomeTM. This Course explains the basics of the futures markets in simple and easy-to-understand
language and then teaches how to trade futures using a straight-forward system. Material is reinforced with case studies and actual, real-life
trade examples that you can follow in your own paper trading or actual trading account. The Course is ideal for
the beginner or anyone looking to trade futures as a means of generating a second income. You can employ the trading system
exactly as is taught or you can use it as a starting point and build upon it. We even give you some ideas in the Course on how to do this.
If you're interested in day trading, then take a look at
our site, Day Trading Futures.
The E-mini® S&P 500® is the most popular futures contract for day trading. For more information on this, please see our specialty
site, Emini Day Trading.
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