8) Futures Fundamentals: Conclusion

Trading in the futures market is risky. It can be especially complicated for those who are still new to investing. While it is not for everybody, the futures market can be suitable for a wide range of people. For those who have already started investing in stocks or bonds, it would be best to talk to your broker if you are interested in futures trading.

Here are the key points covered in this tutorial:

  • The futures market is a global marketplace.
  • The futures markets is all about trading futures contracts rather than the physical commodities involved.
  • In the contract, it will state the price per unit, type, value, quality and quantity of the commodity involved, as well as the month the contract expires.
  • There are basically two players in the futures market: hedgers and speculators. The hedger will, as much as possible, try to minimize risk from rising or declining prices. Speculators are the risk-takers, who will try to profit from rising or declining prices.
  • In the US, the futures markets are regulated by the CFTC and the NFA.
  • Depending on the profits or losses incurred, a futures accounts can be credited or debited on a day-to-day basis.
  • The futures market is characterized as being greatly leveraged due to its margins. Leverage works both ways in that it can get you huge profits or huge losses (even greater than your initial investment) on your futures investment.
  • There are 3 main strategies in futures trading: “Going Long”, “Going Short” and “Spreads”.
  • Once you decide to trade in the futures market, there are 3 approaches used to participate in it: Managed Account, Commodity Pool and Do-It-Yourself.