Understanding Futures Trading 2011-12-14 When you hear about futures trading, two
things usually come into your mind, the very rich people and the extraordinary
financial risk. Futures are deals and agreements for the
delivery of specified amounts of a certain products
and services, on a certain date in the future. Most common commodities involve in futures
trading are agricultural goods such as wheat, pork bellies, fruit juice
concentrate, or any agricultural products.
But futures trading are not only limited to agricultural products, but
may involve precious metals, currencies, or even interest rates, are also
traded and exchanged. Futures trading is considered as
another form of investing. But unlike
any other investments, one is not required to own or even buy the
commodity. All that is needed or
necessary is to make an assumption on where the price of a particular commodity
is going, and make a decision based on that.
Futures trading works like this, if you are the investor and you think
that a certain goods or commodity%u2019s price will go up, you will buy that
commodity%u2019s contract. But if you are
expecting and speculating that the price will be going down, you would sell the
goods and commodities futures. Speculators
are trading the great majority contracts exchanged in futures trading, who clear up their position before the contract
expires, compelling either with a profit or a loss from the transaction. Generally, the delivery of the commodity is
not then the responsibility of the investor but the speculator makes it easier
for those who need to deliver or take delivery of commodities, to plan for the
future.
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