Futures Trading: The Ultimate Beginners Guide

Investing in futures diversifies your portfolio because you can buy different assets. On top of that, investing in futures for beginners happens in many ways, such as speculating, hedging, and short-selling. Some contracts, such as oil and gold, are assets that a seller can deliver.

On the other hand, when you buy or sell contracts like index futures, you can agree to convert them into cash. To learn futures trading for beginners, do thorough research because this market is rewarding but challenging.

What Is Futures Trading?

It’s the buying and selling of a financial commitment called a futures contract. As a buyer, it’s a commitment that you will buy the asset indicated in the contract in those terms at the specified time. Hence, the seller fulfills the obligation at the mentioned price when the contract expires.

A futures contract also indicates the currency unit and the quantity you’re trading. For sellers, futures prevent losses from unexpected price movements as they agree with the buyer months in advance, and the price doesn’t change.

Understanding How Futures Work

One thing you’ll learn when searching for information about futures trading for beginners is that these contracts don’t trade the same hours as stocks. Unlike stocks that trade from 9:30 a.m. until four in the evening, you can buy futures round the clock six days a week.

Therefore, you can trade futures as a side hustle.

Futures traders are either individuals or institutions. The price of these assets isn’t dependent on the news about the company or its business environment because the price on the contract doesn’t change. Nevertheless, futures are volatile, so it’s as risky as any other market.

Choosing A Futures Contract Type And Market To Trade

You can buy or sell futures in different categories. Each market presents its unique benefits and challenges. Therefore, pick one or two that you can trade comfortably and focus on them.

For example, you can buy futures of precious metals like silver to hedge your wealth against inflation. If you want to earn from price movements, try stock index futures.

Livestock futures let you speculate on price movements. That way, your plan is not to own the commodity but to speculate on price changes. Other types of futures contracts you can try are agriculture, interest rates, and energy.

Choosing Your Investing Strategy

There are many futures trading strategies for beginners. Your choice depends on your investment goal, skills, and funds.

One of the ways of investing in futures for beginners is short-selling. As such, you borrow assets at a lower price, sell them, and buy them later at a lower price. Then, you make some money after returning the ones you borrowed.

Another way of future and option trading for beginners is speculating on the price direction of various assets.

You can go long, where you buy a contract hoping the asset’s price will increase. The problem is the price might go up, yet you’re waiting for it to drop. The alternative is going short on futures likely to fall.

You can also use a calendar spread strategy by trading short and long on one asset. However, in such a spread, the asset has two different expirations. If the calendar spread is bullish, consider going long on the futures contract with a short expiration date.

Placing Your Futures Trade And Managing

In many articles on trading futures for dummies, you learn that you should trade through an introducing broker. This expert helps you set up a trading account. The first thing to do is design your trading plan.

As such, decide the profit margins to expect and create an exit strategy to protect your investments. You’ll spend a lot of time studying the market, from reading charts to news reports. Therefore, narrow your starting portfolio.

However, it shouldn’t be too small that you can’t offset the losses incurred in one market with the gains in another.

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