One of the least understood financial markets is futures. That is in part due to the fact for many years it has been referred to as “commodity futures”, which has no doubt turned many would-be traders away, folks who don’t have any interest in things like Pork Bellies and Orange Juice. The other factor is the perceived complexity of the futures market. The fact of the matter is that futures trading is incredibly diverse and not as difficult to do as many think.
Sure, for decades futures trading focused on the commodity markets. That’s a simple function of how they developed. Now, however, the focal point has shifted considerably. Yes, one can certainly trade agricultural good, energy products, and metals but there is more action in things like interest rates, currencies, stock indices, and even stocks themselves.
What’s more, technological developments have made the futures market much more accessible to the individual trader. It is now possible for even lightly capitalized traders to trade effectively in the futures market, something difficult to do in previous years. This has opened up a whole array of new opportunities for the individual to pursue their trading goals.
Consider this. Nowadays just about anyone can trade things like Gold and Crude Oil. These markets have made enormous runs in recent years. One could also take positions in the US Dollar at a time when it has shown persistent weakness, or in US Interest Rates as they were steadily increased.
As for futures being complicated - not really. Are they different than trading stocks? Sure. They are leveraged instruments. That means they present some very exciting opportunities for traders who use them in the context of well developed risk management strategies (which all traders should have anyway, regardless of market).
Futures prices move just like those in any other market. The same analytic techniques used to trade stocks or Forex or any other market can be applied to futures. Their prices are, after all, based on those of the markets underlying them. That is why they are referred to as derivative instruments – they derive their value from other markets. Stock index futures track stock indices. Currency futures prices move with foreign exchange rates. Single stock futures follow the prices of the stocks they represent.
Naturally, this derivative nature does mean some differences in the actual trading of futures as opposed to the markets underlying them. The concepts involved, however, are easily understood. It is possible for one with a basic understanding of trading and the markets to grasp them quickly and be operating effectively in the futures markets within only a short period of time.
If you haven’t already done so take the time to look into the futures market. This could very well provide you with the opportunity to broaden the instruments that you trade.