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The Ultimate Guide to Futures Trading
The perfect resource for beginner-to-advanced traders looking to learn new skills or hone existing ones.
The Ultimate Guide to Futures Trading is full of insights and strategies for traders looking to hone their current skills and get up to speed on the latest trends in futures trading.
Read it now to build or refine your trading plan without the false starts and missteps that come with doing it alone.
What is Futures Trading?
A futures contract is a legal agreement on an organized exchange to buy or sell a particular asset or commodity at a predetermined price but to be delivered and paid for at a later date. Futures trading is simply the exchange between buyers and seller of these contracts.
How Does Futures Trading Work?
Hedgers use futures contracts to secure a specific price and protect against the possibility of wild price swings (up or down) ahead. To illustrate how futures work, consider the airline industry and the cost of jet fuel.
- Southwest Airlines wants to lock in jet fuel prices to avoid an unexpected increase in oil prices. Future contracts give Southwest the ability to lock in fuel prices for delivery at a future specified date.
- Just like Southwest, a fuel producer may find it beneficial to hedge against the decline in the price of oil allowing them to ensure they can remain profitable if oil prices were to drop. The producer sells a futures contract to ensure protect against an unexpected decline in prices.
- Both sides agree on specific terms: To buy (or sell) 10 million gallons of fuel, delivering it in 90 days, at a price of $40 per gallon.
Southwest has actually been one of the better companies at hedging fuel costs.
Not everyone trading in the futures market wants to exchange a product in the future for the purpose of hedging.
Speculators, someone who looks to profit off the future movement of a security price a.k.a. Day traders look to profit from the change in value of futures contracts without any intention of ever taking delivery of the underlying product.
What Are the Benefits of Futures Trading?
- Tax Advantages (U.S. Traders): Profits on futures contracts are taxed at 60% the more favorable long term gains and 40% as ordinary income.
- Liquidity: Particular contracts like the e-Mini S&P 500 are some of the most liquid contracts you can trade. This allows for minimum slippage and increases your income ceiling.
- Market Hours: Virtually a 24 hour market. Sunday – Friday 5:00p.m. – 4:00p.m. CT with a trading halt from 3:15p.m. – 3:30p.m. CT; Daily Maintenance period Monday – Thursday 4:00p.m. – 5:00p.m.
- Transparency: Having centralized exchanges allows traders better access to market data. For example, Forex has no centralized exchange making the data less transparent.
- News Risk: Trading a product like Index Futures reduces your exposure to micro news events. A.K.A Enron.
About The Ultimate Guide to Futures Trading
Futures trading isn’t magic, and you don’t need to be a genius to be good at it. Our goal for this guide was that after reading it traders would have a complete understanding of the futures market as well an outline for success in this industry.
The Ultimate Guide to Futures Trading doesn’t present hype about the latest flashy trading strategies or how you’re going to make millions overnight. Instead, this resource covers foundational disciplines such as how the futures market works, developing a trading strategy, psychology of a trader, and much more.
Futures contracts may seem mysterious or complex to new traders when in reality they exist to serve a simple purpose.
Learn all the details of a futures contract including the history, settlement procedures, margin requirements, popular products, and benefits.
Once completing this chapter you will know more about Futures than 99% of traders.
Dive into the nuts and bolts of how to actually trade futures. We’ve created a step by step guide for you to follow as you grow as a trader.
We teach you all the necessary steps prior to opening a live account. We discuss setting expectations, different types of traders, pricing, calculating P&L, type of futures, how contracts are settled, brokers, charting platforms….you name it.
Choosing the right charting software that fits your trading style and goals is key when developing your edge.
We assembled a proprietary scoring to come up with the best charting software for you depending on your trading style and goals.
Whether you’re a futures, options, forex, or stock trader, our list of charting packages has you covered.
Choosing the right futures brokers that meets your experience level and needs is essential to becoming a successful trader.
In this chapter we give you a complete breakdown of the best futures brokers based on our proprietary scoring model.
Whether your brand new to trading futures or a professional we have the right futures broker for you.