Welcome to the Beginner’s Guide to Trading Futures. This guide will provide a general overview of the futures market as well as descriptions of some of the instruments and techniques common to the market. As we will see, there are futures contracts that cover many different classes of investments (i.e., stock index, gold, orange juice) and it is impossible to go into great detail on each of these. It is, therefore, suggested that if after reading this guide you decide to begin trading futures, you then spend some time studying the specific market in which you interested in trading. As with any endeavor, the more effort you put into preparation, the greater your odds for success will be once you actually begin.
Important Note: While futures can be used to effectively hedge other investment positions, they can also be used for speculation. Doing so carries the potential for large rewards due to leverage (which will be discussed in greater detail later) but also carries commensurately outsized risks. Before beginning to trade futures, you should not only prepare as much as possible, but also make absolutely certain that you are able and willing to accept any financial losses you might incur.
The basic structure of this guide is as follows: we will begin with a general overview of the futures market, including a discussion of how futures work, how they differ from other financial instruments, and understanding the benefits and drawbacks of leverage. In Section Two, we will move on to look at some considerations prior to trading, such as what brokerage firm you might use, the different types of futures contracts available and the different kinds of trades you might employ. Section Three will then focus on evaluating futures, including fundamental and technical analysis techniques as well as software packages that might be useful. Finally, Section Four of this guide will provide an example of a futures trade, by taking a step-by-step look at instrument selection, market analysis and trade execution. By the end of this guide, you should have a basic understanding of what is involved in trading futures, and a good foundation from which to begin further study if you have decided that futures trading is for you.
The Table of Contents
- 1 Introduction
- 2 The Basic Structure of the Futures Market
- 2.1How Futures Work
- 2.2 How Futures Differ from Other Financial Instruments
- 3 Considerations Prior to Trading Futures
- 3.1Choosing a Brokerage Firm
- 3.2Categories of Futures Markets
- 4 Evaluating Futures
- 4.1Fundamental Analysis
- 4.2Technical Analysis
- 4.3Tools and Techniques
- 4.1 A Real-World Example
- 4.1 Conclusion