Trading in the Futures Market can be a very rewarding method of investing. This is a unique type of investment. It is somewhat different from the stock market, in that if someone makes money, someone looses money in the same amount. While in the stock market everyone tends to make money in a Bull market. In futures trading profit can be achieved whether the market moves up or down. It is not required to purchase the entire amount of the contract when buying it. Usually about 10% of the contract amount is required, then all the profits or losses are in your hands. A small move in the value of the commodity can result in a very high percentage change compared to the amount invested. This is known as leverage. It can work for the investor or against the investor. It is extremely important to know how to protect ones trading position and reduce losses if they should occur.
Basically futures contracts exist on paper only. That is most are offered for sale by people that don’t have the physical product, and they are purchased by people that have no intention of taking delivery of the product. These players are known as speculators. speculators are important to the system to add liquidity to it. This liquidity helps to insure that any order that you may place in the system is executed very quickly.
It is far more difficult for any market participants to cheat in the market. Not like the often encountered, insider trading that can occur in the normal stock markets. Commodities Futures Markets tend to move faster than future currency markets. While this can work for the investor, one must learn how to guard against extraordinary losses. New investors are cautioned to study the futures market before actually investing money.