Alphasynctrader

About Futures Trading

Essentially, a trading platform is a software system typically offered through a brokerage or other financial institution that lets you trade online, on your own. A trading platform gives investors an online interface through which they can access various markets, place trades, monitor positions, and manage their accounts.

Commodities represent a big part of the futures-trading world. Stock futures investing lets you trade futures of individual companies and shares of ETFs.

Futures contracts also exist for bonds and even bitcoin. Some traders like trading futures because they can take a substantial position (the amount invested) while putting up a relatively small amount of cash. That gives them greater potential for leverage than just owning the securities directly.

Most investors think about buying an asset anticipating that its price will go up in the future. But short-selling lets investors do the opposite — borrow money to bet an asset's price will fall so they can buy later at a lower price.

One common application for futures relates to the U.S. stock market. Someone wanting to hedge exposure to stocks may short-sell a futures contract on the Standard & Poor’s 500. If stocks fall, they make money on the short, balancing out their exposure to the index. Conversely, the same investor may feel confident in the future and buy a long contract – gaining a lot of upside if stocks move higher.

Advantages of Automated Systems

What are future contracts

Futures Contract Specifications

Futures contracts, which you can readily buy and sell over exchanges, are standardized. Each futures contract typically specifies the following parameters:

Unit of Measurement: Defines the measurement used in the contract (e.g., barrels, bushels, ounces).
Settlement Method: Indicates how the trade will be settled — either through physical delivery of the goods or via cash settlement.
Quantity: Specifies the amount of goods covered by the contract.
Currency: The currency in which the futures contract is quoted.
Grade or Quality: When applicable, the contract defines the quality or grade of the asset (e.g., octane level of gasoline or purity of metal).

The risks of futures trading: margin and leverage

Many speculators borrow a substantial amount of money to play the futures market because it’s the main way to magnify relatively small price movements to potentially create profits that justify the time and effort.

But borrowing money also increases risk: If markets move against you, and do so more dramatically than you expect, you could lose more money than you invested. The CFTC warns that futures are complex, volatile, and not recommended for individual investors.

Leverage and margin rules are a lot more liberal in the futures and commodities world than they are for the securities trading world. A commodities broker may allow you to leverage 10:1 or even 20:1, depending on the contract, much higher than you could obtain in the stock world. The exchange sets the rules.

The greater the leverage, the greater the gains, but the greater the potential loss, as well: A 5% change in prices can cause an investor leveraged 10:1 to gain or lose 50 percent of her investment. This volatility means that speculators need the discipline to avoid overexposing themselves to any undue risk when investing in futures.