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Futures trading and where to start for a beginner?

By Garisson3/12/2020 06:03Thu Dec 3 06:03:57 2020

Views: 91

A futures contract is a contract between two investors. The subject of the agreement is the delivery of the asset within a clearly defined period and at a pre-agreed cost. The exchange acts as both an intermediary and a regulator in such a trading operation.

Let's try again to understand what futures are, but now in simple words. Let's use an example to explain the essence of this derivative financial instrument. Let's assume that you have 3 tons of grain, but this year is expected to be a record harvest, which will eventually cause the value of this asset to decrease. How can I insure myself against possible risks?

It is enough to conclude a futures contract by selling grain at a set price. Let's imagine that at the time of signing the agreement, the price has not yet dropped. Thus, if the fears are justified, the buyer of the asset will lose money, while you will sell the grain at the highest possible price.

However, the proposed example is more of a theory, because private investors do not trade grain, they earn money by performing speculative trading operations. Futures trading is designed in such a way that each participant in the transaction can transfer its obligations to third parties, which actually allows you to speculate without waiting for the actual delivery of the asset. Not to mention that there are special futures contracts that do not involve physical delivery of the asset.

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