The futures market is essentially a wholesale market. It is comprised of many common, household items but the difference is that
trading these futures contracts is done in large bulk. For example, when you go to the grocery store to buy sugar, it is usually in five-pound bags. In the
futures market, 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 are drawn to the futures market
in search of high-yield investing opportunities.
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 futures trading.
In addition to the wide selection, there is another great advantage to futures trading: 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. In the futures market, 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 appeal of futures trading is high leverage. This 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 back 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
futures trading risky and is described in greater detail in Understanding Futures at right.
All beginning futures traders should start with a solid education. Futures trading is not appropriate for everyone so it's important
to first decide if this type of trading is appropriate or not for you. You may want to watch our free Futures
101 Streaming 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 the futures market 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.
We also designed a special course for the beginning futures trader 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 a futures trading system, complete with case studies and actual and ongoing trade examples, that is ideal for the beginner or anyone
looking to trade futures as a second income.
Have a question about futures trading? 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 above.
Finally, before you trade 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.
Keywords: how to trade futures, futures trading, trade futures, futures options, guide, basics, education
Abstract: Premium educational site on how to trade futures that includes futures trading basics, futures trading video tutorials, futures and options paper trading and a beginner's course on how to trade futures.
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