Futures Trading: Definition, Strategies, and Benefits | Espresso

Understanding the Fundamentals of Futures Trading

If you are willing to trade Futures, you must assimilate its concepts and must have distinct skills. Futures are a market of opportunities but are more complex than traditional trading methods. A person willing to trade in this market must have sharp clarity and a sound intellectual framework to understand the implications the market shows through its behavior. To develop the required understanding to conduct a sensible assessment, one must know the basics of markets, technical analysis, fundamental analysis, etc. 

Published on 08 January 2024

Trading in this market is overwhelming for novices, and they need to develop a detailed understanding of its various facets to trade in the market proficiently. It also enables them to avoid misgivings of the market. 

Futures Trading-Introductory overview

In Futures trading, two traders agree to buy or sell at a predefined price and lot size on a specified date. Traders have to buy or sell on or before the specified date is called the expiration date. Futures are derivatives that derive their value from the underlying financial instrument. Stocks, Indices, Commodities, Forex, etc., are different asset classes through which traders can trade in the Futures market. 

Traders involved in Futures trading get to buy or sell an asset at a pre-established fixed price irrespective of the market conditions. Traders and investors may achieve their investment goals by using these contracts. There are a few things traders and investors must remember while placing their trades in the market. Here are some of them:-

  • Exchanges like NYMEX, CBOT, CME, etc., allow traders and investors to place their trades in this market. 
  • Traders agree to buy or sell at a specific price, closure date, and volume. After thorough due diligence, traders must place their trades in the market to decide their long or short-trading strategy. Traders buy or sell a contract at the fixed price determined at the opening of the trade. 

Different Assets in Which You Can Trade Futures

The following are different financial instruments through which trading Futures is most common:-

Futures on Stocks

Equities or shares being one of the most traded assets in futures markets have the potential to provide traders and investors with trading opportunities they aspire to. The high liquidity of this market favours traders and investors and enables them to execute trading strategies as per their speculation. Traders and investors may implement long-term and short-term trading strategies using this asset in the Futures market. 

Futures on Indices

An index is the representation of a stock market's performance or the market's subset. Indices are a preferred market for Future trading due to the opportunities they provide. Traders with an understanding of the market may make sensible use of available opportunities to have a favourable outcome from placing trades in the same. Traders must conduct a detailed assessment before placing their trades to avoid misgivings and manage the associated risk. 

Futures on Commodities

Commodities are raw materials used daily and have absolute or substantial fungibility. They are also one of the most suited assets for Futures trading. Traders may fulfil their financial goals by using this asset to place their trades in the Futures market. These are suited for directional and non-directional trading strategies. Traders may diversify their trading portfolio using this asset while trading with Futures. With the same, traders and investors may have unparalleled trading experience. 

Futures on Forex

Currencies being a high-net-worth market, offer higher liquidity to traders and investors trading in the same. Depending on their philosophical inclination and extrapolation about the market, traders may implement their bearish and bullish trading strategy while trading FX on Futures. 

Benefits of Trading in Futures

Futures trading can be lucrative and offers a multitude of benefits to traders and investors. The following are some of the advantages traders receive by trading Futures:- 

Market Access and Diversification: Traders can use multiple financial instruments to place their stakes in the market, providing them with desired trading opportunities. 

Short Selling Freedom: Traders may benefit from the falling market by employing bearish trading strategies. 

Liquidity and Efficiency: The futures market offers adequate liquidity to traders, enabling them to implement their options and futures trading strategies successfully. 

Concluding Remarks

Futures trading for beginners and seasoned traders could be profitable if they are well-versed in its concepts and have the required proficiency to make sensible trading decisions. Traders and investors may place their stakes in this market through multiple financial instruments. The best futures trading platform provides traders and investors with required amenities to place their stakes in this market. 

Chandresh Khona
Team Espresso

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