What is Futures Trading?
Futures trading in America began in 1865, at the end of The Civil War.
The Chicago Board of Trade (CBOT), a former local flour store, formalized grain trading with the development of standardized agreements to buy and sell fixed amounts of a certain commodity at a future time for a predetermined price called "futures contracts".
In futures contracts, you need only a small portion of money to buy or sell contracts. In other words, you have large leverage in trading.
In actual trading, if you have $1,000 as "Margin" in your account, you can trade a contract as much as $10,000 worth.
If you buy (or "go long") a futures contract for $10,000 and the price goes up to $12,000 after the trade, you will gain $2,000 profit.
All you need is $1,000 in this trade, so you can double your asset.
The risk is big too. If the price of the futures goes down to $8,000, your loss will be $2,000.
In such case, you not only lose ALL $1,000 in your account, but have to send additional $1,000 to your broker to fill a deficit.
These high-risk and high-return characteristics of futures require that traders have a good knowledge of risk management.
Although futures trading started in commodity markets such as corn, wheat, cotton, and oil, most of the money in futures is now in the financial area, where futures of index, currency, and Treasury are traded.
The Chicago Board of Trade (CBOT), a former local flour store, formalized grain trading with the development of standardized agreements to buy and sell fixed amounts of a certain commodity at a future time for a predetermined price called "futures contracts".
In futures contracts, you need only a small portion of money to buy or sell contracts. In other words, you have large leverage in trading.
In actual trading, if you have $1,000 as "Margin" in your account, you can trade a contract as much as $10,000 worth.
If you buy (or "go long") a futures contract for $10,000 and the price goes up to $12,000 after the trade, you will gain $2,000 profit.
All you need is $1,000 in this trade, so you can double your asset.
The risk is big too. If the price of the futures goes down to $8,000, your loss will be $2,000.
In such case, you not only lose ALL $1,000 in your account, but have to send additional $1,000 to your broker to fill a deficit.
These high-risk and high-return characteristics of futures require that traders have a good knowledge of risk management.
Although futures trading started in commodity markets such as corn, wheat, cotton, and oil, most of the money in futures is now in the financial area, where futures of index, currency, and Treasury are traded.
