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.