Many traders begin trading currency pairs and then move on to stocks, futures, CFDs, and CFDs. These latter options will be my topic today.

Futures are a contract between the buyer and seller that allows them to agree to sell/buy an asset in the future at a fixed price. These contracts were originally intended for companies to avoid any unnecessary expenses.

Here's an example. We are coffee sellers, but we know that the price of coffee will rise due to the pandemic. We agree to a large supply at the current price, but within six months. This will avoid a sharp increase in price and decrease in sales.

We will win if the coffee price rises in the future. This is because we will be able to buy coffee beans at a lower cost. The seller will profit if the price doesn't rise or fall because they will sell coffee at a higher cost than the current price.

Base commodities for futures contracts include crude oil, wheat and corn. These contracts are traded on the exchange and the real supply of the commodity is never achieved.

Futures trading is speculative. Traders work with them to profit from the price difference. They usually close their positions before the contract expires or the supply date arrives.

Futures are interesting for traders.

Futures contracts are generally not as popular as stocks. Futures trading is different from stocks. Stocks are more like an investment.

Moreover, futures also have some advantages that are not available for stock market investments. Futures can be traded 24 hours a days, six days a semaine, while shares only have a short trading window.

Futures have a better margin requirement for selling than stocks. Short positions in stocks are when you sell the asset you have borrowed and then buy it for less. This trading operation requires high margins for stocks. Futures have the same requirements for buying and selling.

Futures allow you to diversify certain assets and make more active investments in them.

The share price of an oil company's shares will not depend only on oil prices, but also on how the management and its rivals work. A futures can, however, only depend on the oil price and not any other factors that may be created by the company or its competitors.

This does not mean futures are less risky. However, it is still a financial instrument that can be used in combination.

Trading futures have a lower margin requirement than trading shares. They typically require a minimum of 1-10% of the asset's value. Traders can also use leverage, which must be paid for.

This is a positive, but it also increases the risk of the trader opening many trades without any guarantees. If the price moves in the desired direction, the trader wins. However, if it reverses, traders can lose a lot. When trading futures, be cautious about leverage.

What are the futures?

There are many types of futures contracts available in different markets. To make informed decisions and understand the market better, a speculator should only choose one or two assets. These are the most popular futures:

• Precious metals. Traders trade contracts for silver and gold. This is how they attempt to protect themselves from rising inflation and global financial instability.
• Stock indices. These contracts are dependent on movements in stock indices such as Dow Jones or Nasdaq. Traders try to profit from these movements.
• Energy. These futures include oil as well as natural gas, which can give hints about global oil price movements.
• Agriculture. These are the futures of wheat, soy and corn. These are greatly influenced by the weather and seasons.
• Treasury bonds and interest rates . These futures are the most important in global financial markets. Traders keep an eye on US Fed actions.
• Animal husbandry. Traders speculate on the prices of pork and cattle in this category. This category is strongly influenced by supply and demand.

What is the best way to trade futures?

Futures trading requires that traders focus their attention on a small number of instruments in order to be focused and gain experience. Futures allow you to take both long and short positions. The direction of your work will depend on your risk tolerance and your goals.

Long positions are when you purchase a contract and then wait for it to grow. You then sell it at an increased price to make money. The base asset's inability to grow or fall means that you could lose your money.

You sell your futures to wait for the price of your base asset to drop in the future. There are risks, however: If you are in a short situation and the price of the base asset rises, your losses could be unrestricted because growth is unlimited.

Calendar spread is another term. This strategy allows traders to take both a short and long position in an asset, but with different delivery dates.

The small difference in the price of the bought and sold contract can result in a potential profit. A positive calendar spread means that the trader purchases a futures contract with a shorter delivery period and sells one with a longer term. If the calendar spread is negative they will sell futures with shorter delivery terms and buy futures that have a longer term.

Bottom line

Futures are a contract between market participants that allows them to sell or buy a financial asset in the future at an agreed price. They are normally closed pre-sale without any real supply.

Futures trading is more risky than stocks and is considered speculative. This is because futures are more complicated and have lower margin requirements than stocks. Futures are better suited for short-term traders than for long-term investors, according to some.

Higher risks mean you need to be more careful with your risk management and use your assets wisely.

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