Futures contracts are simply a standardized agreement between two parties to buy or sell a commodity or other asset at a predetermined price on some future date. Futures are traded on an exchange standardized according to quantity, delivery period, contract value and minimum price fluctuations within one day.
The London Market offers investors, and traders access to more than 100 global markets, including US equity indexes and metals such as platinum and gold. Even if you aren’t interested in trading futures contracts yourself, learning how to day trade futures can give you valuable insight into the process. Once the domain of only the most significant investment banks and individual traders, futures contracts are now available to anyone with an online brokerage account.
What is a futures contract?
A futures contract is an agreement to buy or sell something at a specific date and time in the future. Futures contracts are standardized and traded on exchanges like the London International Financial Futures Exchange (LIFFE). They’re used to manage risk, as their value changes as market rates change. You can trade futures contracts yourself for profit or hedging, as many large corporations do
Which type of futures contract would be best for day trade?
Currently, the most volatile market is the S&P 500 index; you could make money following stock index markets and trading stock index futures. S&P 500 E-mini Index futures have average daily volumes that run into hundreds of thousands of contracts traded per day, with expiry times from one to three months
How can you make money?
There are several ways to make money trading futures contracts. One way is by speculating on the price movements of currencies through currency futures, as the US dollar against the Euro currency. Another profitable currency pair to trade is the GBP/USD or “Cable”, which has significant daily volatility.
What do I need to begin trading?
You’ll need a margin account with your broker and access to an exchange to trade futures contracts. You must meet minimum deposit requirements for your margin account before you can enter most markets. Once these basics are arranged, it’s time to open up a practice account with your broker to start trading using virtual money without risking real capital.
How do I trade?
Before trading futures, you have to decide where you will route orders. If you want an online route, then try the London International Financial Futures Exchange (LIFFE), one of the world’s leading exchanges for financial contracts.
Reasons why people day trade futures in London
The main reason why most people day trade futures is that they allow traders to speculate on the changes in prices without owning any of the underlying assets. Shares, commodities and currencies can all be easily traded through futures transactions without buying the product itself, only its derivative. Some traders use this to get around government rules or exchange fees that might apply to the transactions of other products.
For example, if a company is concerned about future changes to its operations, it can buy or sell futures for oil that it will need to power its facilities in the future. If there are concerns about pricing or disruptions to supply chains, companies can now take out an insurance policy on their supplies by buying or selling contracts. Of course, this all comes at a cost as traders have to keep up with market movements and pay brokerage commissions.
Summary
Day trading futures contracts can prove profitable to those willing to take risks – if done correctly, one could earn considerable amounts of money. However, it’s not a get-rich-quick scheme because of all the risks involved. Implementing complete trade reports and risk management skills is essential to prevent losses from wiping out your entire trading capital. New traders should use the services of reputable online brokers like Saxo Bank; click for more info.
