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What is a Futures Contract?

by gbaf mag

Stock futures are contracts to purchase or sell a particular stock on a specific date in the future. Futures contracts have both participants and sellers that have to enter into an agreement to purchase or sell a stock at a pre-determined price on or before a specified date. There is no physical stock being held in the futures market; rather it is a stock agreed upon by two or more parties that has determined a date in the future when the stocks will be bought or sold. A stock futures contract differs from a stock option in that the price paid for the option is not necessarily the price at which the stock is listed on a stock exchange. Instead, the price that is agreed upon is the value at which the stock is determined at the time of the option exercise.

The two types of stock futures – index futures and forward futures – are most often associated with the stock market. When used as an investment vehicle, index futures offer investors a chance to participate in the stability of a particular index, like the Dow Jones Industrial Average or the FTSE100. On the other hand, forward futures allow investors to speculate on the probability that an index will rise in the future. This speculative nature is attractive to many people who have an interest in stock market investing.

When you are considering investing in the futures markets, you need to know a bit about futures itself. An index futures contract represents an agreement to buy or sell specific underlying shares at a pre-determined price in the future. An individual stocks futures contract represents an agreement to buy or sell individual stocks at a pre-determined price in the future. When these contracts are traded, they are considered “futures contracts.” Futures contracts are traded on the futures exchange market and are subject to the same laws that apply to stock options.

There are a number of things to keep in mind when it comes to trading futures. One thing to remember is that futures trading and investing is considered high risk. The volatility of stock futures can make them very volatile. Individual contracts and even companies can suddenly file bankruptcy. If you invest in the markets, you run the risk of losing all of your money if you choose incorrectly. You should always do research and consult with professionals before you begin to trade any type of stock futures.

Another important thing to keep in mind is that trading futures can be very profitable for some, but not for others. Some investors prefer to make their money in more conventional ways. For example, some investors prefer to work with money market funds. These types of funds generally do not provide a lot of volatility and offer a relatively stable return on investment. Other investors enjoy the fast paced nature of stock futures investing and consider short term trading and day trading to be their style. These investors need to keep their money in a safe place until it becomes more advantageous to them.

Some investors prefer to short position their stock futures. A short position is a method of selling a security and taking out another position against it. This allows an investor to get more out of their investment faster. It takes time for the two positions to equalize which will in the long run net the same profit. An example of a short position is when you sell stock futures and buy back the same futures at a later date for the same price.

Futures contracts are usually traded on major exchanges like the New York Board of Trade (NYSE) and the American Petroleum Institute (API). The New York futures market is the largest for trading in the United States by amount and also has the most volume. The Chicago Board of Trade (CBOT) and the Boston Stock Exchange (BOX) are two other major futures markets in the United States. Many people use the NDAQ (national association of securities dealers), the Toronto Board of Trade (TSB) or the South Coast Exchange (SCX). There are many futures brokerages that offer these contracts. The contracts are also traded in the over the counter manner, meaning they are not restricted to a particular futures exchange.

One of the best ways to use these contracts is with a short term investment strategy. Short term investing means using a futures contract as capital for making profits. These contracts offer excellent volatility and large payouts. Investors who use this investment strategy can earn very large returns very quickly. For those who are new to futures contracts and are unfamiliar with the strategies involved investors can find information on Seeking Alpha, a professional online newsletter that provides investors with financial advice.


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