Futures Strategies

I’ve covered a lot of ground in explaining how futures work and are traded. There are many other factors to do with futures, such as the size of each contract and the specifications, and these are spelled out on the websites that give you information on specific futures contracts. You need to be especially careful in confirming the size of contracts so that you know exactly what you’re committing to.

In some senses you can trade futures as a ‘super’ commodity or stock. What you’re getting is multiplication of the power of your money by use of the margin and leverage available. If you anticipate that a stock or index is going to go up, which you can do by applying technical analysis to the stock chart, you simply buy a futures contract on it to multiply your gains. However, you shouldn’t think that you can transfer seamlessly to futures trading from the stock market, and just get increased returns. You have to watch out for the increased risk because of the acceleration of your losses which is intrinsic in the leverage, and can take your money out of the market quickly if you are not careful.

However, you are still interested in whether the price of the underlying is going up or down, whether you are following the futures prices or the current price, and therefore you can use the technical analysis techniques that we have covered to look at the charts and make an assessment of which way to trade. Bearing in mind that any such assessment is only a “best guess”, you must be prepared for the times when the price goes in the opposite direction to the one that you expect, and with the leverage available with futures you need to be careful to run the figures to avoid overexposing your account.

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