The Basics of Futures Trading and Investing   by Joe Giudice

in Investment / Day Trading    (submitted 2012-01-16)

Futures trading is generally thought to be the domain of experts and trading professionals because of the risks involved with such trading. However the progression and popularity of electronic trading and expanded trading hours in the futures market, futures trading is becoming more popular with the general trading public.

One can trade many different kinds of futures almost 24 hours a day, 5 days a week. Such futures contracts include market indices, foreign exchange, commodities and even stock futures and futures options.

Another reason for the popularity of futures trading amongst the general trading public is that the much criticized pattern day trading rule does not apply. Therefore unlike with stocks, traders with accounts under $25,000, can buy and sell futures contracts as much as they like. Also, Stock Brokers generally allow traders generous margin allowances in which to trade futures.

Unlike investing with stocks, retail traders generally do not take physical delivery of the futures contract. For example, if you are trading crude oil, you are trading a contract that extends out one or two months from the date you place the trade. If you held that contract up until expiry, generally your contract would roll over to the next month.

So in essence, retail traders who trade futures contracts are simply speculating as to the short term direction (up or down) of the underlying futures contract.

As mentioned, there are many kinds of futures contracts that can be traded. Some of the more popular futures contracts include S&P500 futures, Nasdaq futures, Crude Oil, Gold and Silver. However there are hundreds of commodities that are able to be traded on the futures market. A few of these are Corn, Wheat, Coffee, Sugar, Soy Beans, Pork Belly and even the weather.

So while trading futures might seem a little daunting to some, in reality they trade somewhat like stocks do. One must pay attention to both the technical and fundamental factors that might influence the price direction and velocity.

Such fundamental factors that might impact the price movement of a particular futures contract include such things as macro-economic or geo-political events, weather, economic growth, supply and demand influence. Technical indicators such as moving averages, Fibonacci retracement, pivot points, etc, like with stocks, are equally important, especially in the short term.

While it can seem complicated, if you learn the basics, start small and manage your risk appropriately, there is much money to be made in futures trading.

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If you are interested in building wealth through trading futures, please check out Stock Shock and Awe for more information on Futures trading and investing.