Futures Trading Systems
Futures Trading Systems Before future trading, the producer of the commodity was found himself at the mercy of dealer at the time of selling the product. Hence it was necessary that there should be a legalized system in order that specified amount and quality of product could be traded between the between the traders and the dealers at specified date. Thus the contracts were made between the traders and the dealers specifying the certain rate and quality of the commodity that would be delivered in particular month
.In this way the futures trading emerged. Future trading: The future trading systems is the form of investments which involves speculating on the prices of commodities which rises and falls in the future .The term commodity can be understand as wheat ,sugar ,oil etc .Until twenty years ago only the few farm products were traded but now huge number of commodities are traded metals like gold ,silver ,platinum ;live stocks like beef, pork ;energies like crude oil, natural gas; food stuffs like coffee ,orange juice; industrials like lumber, cotton and modern future markets includes wide range of interest rate instruments ,currencies and many more.
Before the future trading involved only the farmers and the dealers but it didn?t take a long for businessmen to grab this as an investment opportunity .They do not have to actually sell or buy the commodity ,it was just the paper contract until they exit before the delivery period .This gave rise to the future trading speculation and investment and about 97% of future trading is done by speculators.
There are two types of future traders Hedgers and Speculators.
Hedgers :A hedger is the producer of commodity (for e.g farmer ,oil company) who sells the future contracts to protect himself from the future variations in the prices of the product .Other hedgers of the future trading are banks ,insurance companies who uses the futures as the hedge against the variations of cash prices of their products at future dates.Speculators :Speculators are the independent traders and private investors .
The trader makes high profit by investing in future contracts. The trader has to put only small fraction of value called as margin to buy the contract and can trade larger amount of commodity then he would have brought it physically .He gets an excellent returns if he is moving correctly with the predicted market .He looses some amount if the market is against the traders . But if the market is in traders favourHe makes high amount of profit which cannot be made by physically investing in the commodity of gold bars ,coins etc.It is only a paper contract.It is a quick making money investment.The future trade markets are fairer then any other market.Most future market are are traded every day.The commissions are small. Since the market being cruel, the investor should always prepare for the worst hence there has to be some system which can eliminate this draw back of future trading.
Thus the future trading runs on managed futures and systematic trading system
Managed futures: In this the skills of professional traders who can manage the trading at the exciting markets futures can be acquired .He manages the trade account even when the trader is at work or on holiday.
Automated system trade : This is the computerized trading system .Using computer to trade a mechanical system helps us in eliminating the humanistic made errors .It can place orders, make stop-loss positions and exits.
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