March 31st, 2010
When people are new to any sector that has to do with the financial markets, the terminology can be overwhelming. There is so many words that you have probably never heard of in your life, even if you are a CNBC junkie. But if you are going to be an effective trader in the Futures markets, then you must know what these terms mean and how they can affect your trade. So we have a list of a couple of the more common ones that you may see on your trading journey. Start to learn them and then after that, start to love them. Because you will be seeing them lot.
the first term that you should know is the term Spot Price. Even though it can seem like it has some strange meaning, it is actually one of the easiest terms that we will discuss. It simply means the current price that you can purchase the commodity that the Future derivative is representing. Thats it. As I said, there is no strange twist about the term. It is very simple. So now when you hear it being used, you will recognize it right away.
Another term that you should get used to seeing is the term wide basis. This means that your Futures contract is not close in price to the price of the commodity that it represents. This can represent a reason to sell or a reason to keep the futures contract depending on where you bought it at. You will see the term wide basis all of the time and it is something that you need to keep an eye out for.
If you are completely new to trading as a whole, then you may not have heard the term trading desk before. This is where all of the action happens. When you purchase or sell a security then it will happen through a trading desk of a brokerage or some other medium. If you have traded any kind of security before, then the term trading desk is not new to you.
Unlimited risk is something that you hear a lot in futures trading as well. This means that the downside of the trade can be infinite. Once it starts trending downwards then it can not be stopped. Trades like these are very risk but can earn you great rewards if it falls your way. You should not participate in a trade such as this until you are more comfortable with the ideal of trading as a whole. You can lose your money very quickly in trades such as these.
These are a couple of terms that you should know before you start to trade in the Futures market. Of course there are many more and we will go over them with you at a later date.
Tags: CNBC, Spot Price, Unlimited Risk, Wide basis
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March 31st, 2010
Depending on what type of trader you are, will help you make the decision on whether you should purchase a trading system or not. There are several factors that go into it and you have to take an honest look at yourself and decide if that is the route that you want to go on. Some people thrive in setting up a system that will do the same calculations that they would do anyway. Why do a trade manually when it is the same exact trade that you would do anyway. Let the computer handle it for you. But some people trade based on more than factors that can be calculated by the computer. There is a level of gut instinct that they listen to before they make the trade. So if you go by gut instinct, then a trading system might not be the best thing for you to use.
Unfortunately, some people believe that once they get a trading system running, then they can just set it and forget it. This is not the case. The computer will just make trades based on the conditions that you set for it. But if those conditions change at any point, you must prepared to react to those changes. You must be willing to be flexible and change the variables that you are using in the system. Now remember, we are not saying that anytime that there is a small change that you should rework your system. Not at all. The purpose of having a trading system is to get you away from second guessing yourself. We are saying that you should not rely on the machine 100% and get ready to make changes if something very drastic happens. This is not often, so there should be no need to worry.
Tags: Futures trading, trading system
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March 31st, 2010
Lately, the financial industry has taken a big hit when it comes to the perception of it. This always happens when people lose money in the markets. But the one thing that you have to learn when it comes to the market, is that what goes down usually comes up. So you must be in the market to make sure you are there when it rises again. This is how most of the millionaires traders that you see became rich. They bought low and sold high. A great way to do this is in the Futures market. For most people, the futures market remains a mystery that they are scared to uncover. But this does not have to be. We will explain to you what the Futures market is and how you an make money at it.
When it comes to Futures, it is actually a pretty simple concept. It is the contract that is an agreement between two people or entities, that states that they will buy a certain asset at some time in the future. This way no matter what happens at that point of time in the future, the item will be sold at that particular price. They are a type of derivative, meaning their value is based on something else. So if another asset goes higher or lower, then it affects how much money the person makes on the future trade. Let’s give a quick example of the basic ideal behind a futures contract.
We will say that you own a car. You know that you are going to drive that car at least 50,000 miles in the next 12 months. So you think the car will not be worth having by the end of that 12 months. Now your friend thinks that the car will be fine at the end of that time. So you make an agreement that at the end of the 12 months, he can buy it for $5,000. You think that car will only be worth $3,000 by that time so you think that you are making profit. He thinks that it will be worth $8,000 by that time, so he thinks he has the better deal. At the end of the 12 months you take it to a car dealership. They tell you that the car is worth $7,000 in the present condition. It turns out that your friend was right and he is getting a $2,000 deal on the car.
This is how a future contract works as well. One person thinks that the asset will be worth more in the future and another thinks it will be worth less. If you are the person that is coming up with the best estimate, then you will get a great deal. If you do your homework on an asset, then you will make a lot of money trading futures.
Tags: future trading, Futures, Futures trading
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