What is the futures trading? How does it work?

Question

I am currently trading on equities but would like to understand more on futures.

Answer 1

Futures is about demand and supplies. For instance you tell that you want 100,000 oranges for September 2008. Then you see if the growers can deliver. If you hold on to the contract, and they can deliver, you will get 100,000 oranges some time in September 2008 (if you have no place for them, too bad). You probably don't want 100,000 oranges, but the whole idea is you hope that somebody else does and wants to buy your contract for more than you paid for it. Generally you control more money than you put in. That means you have a good chance of losing more money than you put in. It's also a quick way to get rich.

Answer 2

A futures contract is a form of forward contract, a contract to buy or sell an asset of any kind at a pre-agreed future point in time, that has been standardised for a wide range of uses. It is traded on a futures exchange. Futures may also differ from forwards in terms of margin and delivery requirements.


In finance, a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price. The future date is called the delivery date or final settlement date. The pre-set price is called the futures price. The price of the underlying asset on the delivery date is called the settlement price. The settlement price, normally, converges towards the futures price on the delivery date.

A futures contract gives the holder the obligation to buy or sell, which differs from an options contract, which gives the holder the right, but not the obligation. In other words, the owner of an options contract may exercise the contract. If it is an American-style option, it can be exercised on or before the expiration date; a European option can only be exercised at expiration. Thus, a Futures contract is more like a European option. Both parties of a "futures contract" must fulfill the contract on the settlement date. The seller delivers the commodity to the buyer, or, if it is a cash-settled future, then cash is transferred from the futures trader who sustained a loss to the one who made a profit. To exit the commitment prior to the settlement date, the holder of a futures position has to offset his position by either selling a long position or buying back a short position, effectively closing out the futures position and its contract obligations.

Futures contracts, or simply futures, are exchange traded derivatives. The exchange's clearinghouse acts as counterparty on all contracts, sets margin requirements, etc.

Answer 3

Futures are standardized agreements between two parties to buy or sell an asset at a certain time in the future at a certain price. Normally these are traded on an exchange, unlike forward contracts. If you are trading futures you are basically trading in price movements of the underlying asset, instead of in the underlying asset itself. Futures allow you to take much bigger positions in the underlying asset, and have much bigger exposure on the price movements of the asset if you have a strong idea in which direction the price will move. They can also be used to hedge your position in the underlying asset, and do not need to speculative at all, but can be very useful at times in a proper portfolio management situation.

If for example a future contract is related to 100 shares of XYZ company, buying the 100 shares has the same risk and return profile as buying 1 futures contract and putting your money on deposit.

Answer 4

well before i answer your question,i must tell you one thing.enter in futures market only if you have enough money to loose and enough heart to face losses.it can give you huge amount of profits but if it start giving you losses then you will be gone within no time.so its better to trade in equities and get slow but steady growth of your money.
well future is sort of trading where you dont actually buy or sell shares .you just trade on their price.

Answer 5

it is as simple as delivery but with time qty choice payment framework

try commodity future ore safe & simple
more on my blog

Answer 6

www.nfa.futures.org/investor/UOR/UOR7what.pdf