Trading futures is a good way to trade, but it is also one of the riskiest ways.
Futures trading consists of buying and selling contracts, anticipating the price it will have in a given time frame.
When trading futures, it is important to understand the contracts, the types of trades and the risks involved. In this way, you can ensure that you are investing safely. To help you understand how to trade futures, here are some things every beginner should know.
What are futures?
. Futures contracts are a type of agreement to buy or sell a certain quantity of an asset at a certain time in the future.
For example, trading a contract for the sale of gold in three months, at a price 1.25 times higher than what you bought today.
Types of futures contracts
. In Futures there are two types of contracts that you should know, the purchase and the sale.
The futures purchase contract obligates the buyer to buy the underlying asset at a certain date and time, called the delivery date. While the futures sales contract obliges the seller to provide the asset.
In any operation, it will be necessary for you to consider how you are going to act against these two contracts.
trading strategies
. There are many ways to protect your futures trading investment.
The first way is by setting an order of
loss limitation
. When you buy a futures contract, it’s in your best interest to set a stop loss order at the point where you’re willing to lose money. Once the price of the commodity reaches that level, the contract will be automatically sold, preventing your losses from further.
Another way to protect your investment is by participating in a
differential operation
. A spread trade is made by buying and then simultaneously selling a futures contract on the same asset, but with different strike prices or expiration dates. This type of operation allows you to benefit if prices rise or fall. Basically, this trade helps reduce risk because if prices drop below their original price, both contracts will still have some value and mitigate losses.
The latest strategy for
protect your investment
would be to place an option with a purchase date farther than the expiration date of its original futures contract. This will allow you to close the position before it expires if it goes wrong and keep some of your money intact even if prices drop lower than expected.
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