Look at the points for the stock market and you would think they are a code. It is something that needs to be learned and eventually, master. When you make an investment, whether for futures trading or other assets, or options you need to start with a basic knowledge.
When there is a chance for profit, you may also face the chance for loss. That is a risk coupled with earning.
What you need to know is that when you invest in the stock market you have to buy low, sell high or sell high, buy low to earn profits. Sounds simple, but on a more serious note, the risks may just be around the corner. And though, most of it is speculation on what goes up or down, risks are calculated by an analyst. And these risks are put to a minimum with a study behind the move to invest in a fund or any asset.
Risk cannot be fully avoided when investing. What a seller or a buyer can also do is to hedge. This is like an added protection for you as an investor.
When you get into a futures contract, you are entering a written agreement to invest in a specified product with a specific amount on a future date. In short, you promise to buy on a future date. The more you dig in, the more you will learn about it but for now, let us just have futures 101.
It somewhat works like this. You know you will be needing oranges this spring. But upon hearing what your broker has to say based on the weather report, there may not be enough supply to meet the demand. When this happens, the price may soar. So you enter into an agreement and set a price that is manageable.
Now, on the seller’s end you may have an inkling that the price would get lower after 2 weeks. So, you could enter a futures agreement and set a price that would still make a profit.
Spring comes and if there is a surplus. The seller may make the most profit if the set price on the contract is higher than the selling price in the market. On the buyer’s end, he has incurred a loss. But, if there is a deficit then the buyer profits and the seller loses.
This is a very simplistic way of looking at it. But it may somewhat make you understand how futures market and futures trading are done. And how you may profit from it. Still, going to a licensed broker would be best.
Learn more about futures trading. Stop by the L2ST site where you can find out all about market profile trading and how to enhance your trader performance.