How to buy futures
Futures are speculative, leveraged instruments and
aggressive traders can lose big, but these derivatives also can be
prudent ways to diversify portfolios and hedge against losses in
volatile markets.
Commodities, stocks, Treasury bonds, global currencies — even the weather — are among the many types of investments tied to futures. Buying and selling takes a high level of sophistication, and that's why futures are mostly a tool for institutions, hedge funds, trading firms and wealthy investors.
At the same time, opportunities for mainstream investors to tap the futures market are more present than ever.
Futures are a way to profit from securities' short-term price movements and trends, both up and down, without actually owning the underlying asset. A futures contract gives you the right to buy a certain commodity or financial instrument at a later date, and you agree to keep that promise.
Here are the main items to watch out for in futures trading:
• High-pressure brokers, pitches and high-cost commissions: Don't be tempted by these danger signs. Run; don't walk, if a futures trading strategy sounds too good to be true.
• Inadequate capital:: Seed a futures trading account with at least $25,000. Even better would be $50,000 in case you're forced to meet margin requirements.
• Thinly traded markets: Futures markets that are more actively traded enjoy greater liquidity, allowing you to buy and sell quickly and often at a better price.
• Lock limits: Futures markets impose limit moves to prevent one-day collapses and to contain volatility. If prices have gained or lost the daily limit, contract activity is essentially frozen, a situation known as a "lock limit" market.
More resources
How to buy ... futures ... the complete story
U.S. Commodity Futures Trading Commission
National Futures Association`
/conga/getting-started/futures.html
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Futures are speculative, leveraged instruments and
aggressive traders can lose big, but these derivatives also can be
prudent ways to diversify portfolios and hedge against losses in
volatile markets.Commodities, stocks, Treasury bonds, global currencies — even the weather — are among the many types of investments tied to futures. Buying and selling takes a high level of sophistication, and that's why futures are mostly a tool for institutions, hedge funds, trading firms and wealthy investors.
At the same time, opportunities for mainstream investors to tap the futures market are more present than ever.
Futures are a way to profit from securities' short-term price movements and trends, both up and down, without actually owning the underlying asset. A futures contract gives you the right to buy a certain commodity or financial instrument at a later date, and you agree to keep that promise.
Here are the main items to watch out for in futures trading:
• High-pressure brokers, pitches and high-cost commissions: Don't be tempted by these danger signs. Run; don't walk, if a futures trading strategy sounds too good to be true.
• Inadequate capital:: Seed a futures trading account with at least $25,000. Even better would be $50,000 in case you're forced to meet margin requirements.
• Thinly traded markets: Futures markets that are more actively traded enjoy greater liquidity, allowing you to buy and sell quickly and often at a better price.
• Lock limits: Futures markets impose limit moves to prevent one-day collapses and to contain volatility. If prices have gained or lost the daily limit, contract activity is essentially frozen, a situation known as a "lock limit" market.
More resources
How to buy ... futures ... the complete story
U.S. Commodity Futures Trading Commission
National Futures Association`
