What are the fundamentals of futures and how to trade in futures?
A futures can be defined as “an agreement between two parties – a buyer and a seller in which the buyer agrees to purchase from the seller, a set number of an index or shares a specific period of time in the future for a pre-decided price.”
When the definite transaction is carried out, all the particulars are agreed between the two parties.
The futures contracts can be freely traded on share market exchanges as the common criteria like contract sizes and expiry dates are standardized.
A future trading is done securely as characteristically buyers will not know who the seller is and vice versa.
Further, the stock exchange guarantees every such futures contract. Futures contracts are made out on diverse types of assets – stocks, indices, currency pairs, commodities and many more.
Investing in futures and options is a risky trade. A future trading cannot be carried out by everyone and the person entering this stock trading needs a thorough knowledge about how the market and the contracts work.
When you are ready to enter after understanding the market fully and the risks
involved in it, there are three ways in which you can carry out your trade.
Carry out the trade yourself:
You can choose to take the force fully by trading in your own account.
Necessary research can be done, maintain margins, manage funds and order trades. This manner has the maximum risk and a lot of time needs to be dedicated to sorting out about the workings of the market.
On the other hand, when the gains come, the satisfaction is entirely yours.
Open a managed account
Similar to an equity account used for stock market, you can open a managed account where the control is with your broker to trade on your behalf.
The broker being a professional will be able to take informed decisions.
On the other hand, it is your accountability for taking any contract call and losses acquired.
Join a community of members
Offering the least risk in the futures market, you can choose a group of commodities that you can invest in by joining a community of members
In this group funds are jointly traded as one. This needs to be administered by an experienced broker as overall risks related with futures market still exist.