Futures trading is an agreement to purchase or sell a particular quantity of a commodity or asset at a predetermined price at a future date. It is quite risky and so it is important for the investors to know about futures in detail, so that they do not end up losing money and time.
A derivative is essentially an agreement between two parties that aids in the calculation of the price of a financial main asset, with both parties agreeing to these contracts ensure the protection and/or a collection of assets. Unlike shares, it is seen as a more developed investment that also includes less risk, making it a more preferred option for businesses. They are mostly traded in hedge funds, with other investors attempting to gain more ownership. There are several benefits and drawbacks to the market, but it has remained quite steady in recent years. Futures, swaps, options, and forwards are the four fundamental types.
Future trading is one of the equity derivates and is quite popular in terms of trading. When it comes to future trading, it is vital to be aware of all the details and monitor it well as it is quite risky and requires proper understanding. Be sure to study all aspects specifically the downside associated with the futures or the agreement of the underlying asset so as to be sure about your investment. Futures are believed to be the most beneficial when used correctly but can turn around if imperfectly.
Yes Indeed. Futures trading includes high risk. Although there are no formulae for regular profits, however, you can reduce the overall risk by hedging your position with the help of Options. For example, you can implement a 'Covered Call' strategy with the help of a 'Long Futures Contract' and 'Short Call Option' in the same asset. Creating a hedge by taking a contra position in options not only limits the overall risk but also gives margin benefit. Under this, you'll require less margin money to take the same trade, which can be used to manage the position later.
Future trading seems very risky, isn't it so? Any tips top earn decent profits in this, do share it.
This is an Informative read on the why and what of futures trading. Well explained!