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Speculative 'paper' investing

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Category: Beginners Guide

Futures trading is mainly speculative 'paper' investing, i.e. it is rare for the traders to truly maintain the physical commodity, only a piece of paper often called a futures contract.

What's a Futures Contract?

To the uninitiated, the term contract is usually a little off-putting but it is primarily used as a result of, like a contract, a futures investment has an expiration date. You do not have to hold the contract until it expires. You can cancel it anytime you like. Actually, many quick-term merchants only hold their contracts for just a few hours - or even minutes!

The expiration dates fluctuate between commodities, and you must choose which contract fits your market objective.

For instance, immediately is June thirtieth and you suppose Gold will rise in value until mid-August. The Gold contracts obtainable are February, April, June, August, October and December. As it's the end of June and this contract has already expired, youwould probably choose the August or October Gold contract.

 

The nearer (to expiration) contracts are normally more liquid, i.e. there are extra traders buying and selling them. Therefore, prices are extra true and less likely to jump from one extreme to the other. However when you thought the price of gold would rise till September, you'd select a further-out contract (October on this case) - a September contract would not exist.

Neither is their a limit on the number of contracts you'll be able to commerce (within purpose - there have to be sufficient consumers or sellers to trade with you.) Many bigger traders/funding corporations/banks, etc. could trade thousands of contracts ata time!
U.S. Government Required Disclaimer - Commodity Futures Trading Commission

Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don't trade with money you can't afford to lose. This is neither a solicitation nor an offer to Buy/Sell futures or options. No representation is being made that any account will or is likely to achieve profits or losses similar to those discussed on this web site. The past performance of any trading system or methodology is not necessarily indicative of future results. CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN. All trades, patterns, charts, systems, etc., discussed in this advertisement and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author and do not necessarily reflect those of the publisher or Tradewins.