Futures trading is a type of investing that involves buying and OnlineFuturesContracts selling futures contracts. It is often used by investors who want to hedge their portfolios or take advantage of underlying market movements.

A futures contract obligates one party to buy a certain quantity of an asset and another to deliver it on a specific date. This can include anything from individual stocks to exchange-traded funds, cryptocurrencies and a variety of commodities, such as oil or coffee.

There are two main types of traders who participate in futures trading – speculators and hedgers. Hedgers use futures to manage their risk in the underlying markets, while speculators profit from predicting the price movements of these contracts.

Exploring the Types of Futures Contracts Available

Brokers in the futures industry typically allow futures traders to trade on leverage — borrowing money from their broker instead of putting up all of the initial capital necessary to take a long position in the futures contract. Leverage can make the difference between a winning and losing trade.

Liquidity

A futures market offers liquidity – the ability to sell an asset at its current value within a short period of time – because futures contracts are standardized on a number of factors based on their underlying assets. These factors include, for example, the futures contract expiration date and a delivery price for the underlying asset.

Traders in the futures industry often use margin and leverage to maximize the potential of their positions, a practice that can increase their overall risk levels significantly. They pay a small amount of the total value of their futures contract upfront, then borrow the rest from their broker. In some cases, a trader may receive a margin call, which requires them to deposit more money into their account to maintain the initial margin level.