What Is the Futures Market?

If you are a beginner in the world of investing, you must have sought different ways to familiarize yourself with commodities. You may have also looked up ways to diversify your investment portfolio without the risks brought by commodity price fluctuations.

If you have, futures may be worth looking into. Futures investment allows you to settle on a fixed amount of capital based on your projections—one which you may be able to fund at a later date.

By settling on a fixed projected commodity price, you as an investor can get a glimpse into how the commodity will perform in the future. Also, you will be able to manage your investment better.

However, diving into the futures market comes with the same risks as conventional trading markets. You will need futures trading education.

Consider this article your introduction to the futures market and trading!

What Is a Future?

In investment parlance, you can think of a future as a fixed contract of sorts. It is a contract that involves the purchase of a commodity for trading or consumption but at a later time and a fixed cost.

There are two prices that you ought to pay attention to when you are trading futures. One is the spot price.

The spot price of a future is the current price of a certain commodity. For example, if oil was priced at around $30 to a gallon today, that is the amount it costs. A spot price is important to know if you are the one selling a future.

On the other hand, you need to know about the future price if you are an investor. The future price is often based on several factors, one of which being the projected price of a certain commodity.

Investing based on the future price of a commodity is a large part of futures trading. Doing this as an investor allows you to agree on a fixed price you can invest. You may choose to pay the initial investment for a future upfront.

Or for leverage, you may opt for installments until the expiration of the futures contract. The expiration of the contract is when the price of the commodity can change again.

How Can I Learn to Trade Futures?

Trading futures can be confusing due to their complexity and time-contingence. This is why most starting investors seek the services of a financial management company or brokerage to handle futures on their behalf.

On your part, you can familiarize yourself with futures trading by seeking futures trading education. Before that, you can do the following.

Watch Tutorials That Introduce Futures and the Market

If you are unfamiliar with futures, an introductory video can help. The internet is crawling with video resources that can help you learn more about what futures are. Even just knowing what futures are can go a long way in your futures trading education and trading later on.

Be sure to look into the validity of your video sources. While there is a lot of good information available about futures, there is also a lot of bad information. Seek out videos by trained professionals or talk to them yourself if you can.

Speak With Your Broker or Financial Management Service

You may also choose to speak with investment professionals. Investment brokers or the representatives of financial management services have a wealth of experience in different investments.

If you are considering adding futures to your investment portfolio, speak with an investment professional. If they are financial advisers, they can also help you determine if futures trading is right for you based on your risk profile.

The futures trading market is like any commodity market in the possible rewards and risks. Indeed, trading in futures allows you to buy or trade commodities that mitigate the risks of an ever-changing market.

Nonetheless, it is best to enter such a venture informed and ready to take on the potential losses. To enter this market, you will need to undergo futures trading education.