Futures Trading 101
I’m Meta Matt, Director of Education and welcome to PB University LITE! This is a 50 Class Trading 101 Series geared towards both new and veteran traders alike! We go over everything from Trading Psychology, Technical Analysis, and Options Trading to Commodity Trading, Forex, and more!! This 50 Class series is not designed be taken in order, it is instead designed for traders to browse and pick which classes interest them. I will include the list of classes at the bottom of this page.
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Imagine a handshake deal between two parties: a buyer and a seller. A futures contract formalizes this agreement, locking in the price to buy or sell an asset on a predetermined future date. These assets can be as diverse as agricultural products (corn, wheat), precious metals (gold, silver), or even financial instruments (stock indices, currencies).
Let's illustrate this with a practical example:
- You're a farmer with a recent wheat harvest. Concerned about a potential price drop before you can sell, you enter a futures contract. This contract guarantees you a fixed selling price for your wheat in, say, six months. Essentially, you've hedged your bets against a price decline.
Before diving deeper, let's explore some key terminology:
- Underlying Asset: The core asset being traded, like gold, oil, or wheat.
- Futures Contract: The legal agreement outlining the underlying asset, quantity, delivery date, and price.
- Delivery Date: The designated date for physical delivery (or cash settlement) of the underlying asset.
- Contract Price: The predetermined price at which the asset will be bought or sold on the delivery date.
- Tick Size: The smallest possible change in the futures contract price.
- Margin: A deposit required by both buyer and seller to uphold the contract.
Types of Futures Contracts:
The underlying asset determines the type of futures contract:
- Commodity Futures: Based on physical commodities like gold, oil, or wheat.
- Equity Futures: Based on stock indices or individual stocks.
- Index Futures: Based on broad market indexes like the S&P 500.
- Currency Futures: Based on foreign exchange rates.
- Interest Rate Futures: Based on interest rates.
The Allure of Futures Trading:
- Hedging: A strategy to protect yourself from potential losses in the underlying asset's price.
- Speculation: Profiting by anticipating price movements of the underlying asset.
- Diversification: Expanding your investment portfolio beyond traditional stocks and bonds.
However, be aware of the inherent risks:
- Margin Magnification: Margin can amplify both gains and losses.
- Price Volatility: Futures prices can fluctuate rapidly due to various market factors.
- Counterparty Risk: There's a potential risk of the other party failing to fulfill their contractual obligations. (This risk is typically mitigated by regulated exchanges).
Futures Trading: A Balancing Act
Futures trading offers a unique blend of potential rewards and significant risks. A thorough understanding of the core concepts, risks, and potential benefits is crucial before venturing into this realm.
PB University LITE Class List
1) Trading Terminology
2) Stock Market Indices
3) Common, Preferred, and Penny Stocks
4) Diversification of Assets
5) Fundamental Analysis Made Easy
6) Technical Analysis Made Easy
7) Risk Management In The Market
8) Portfolio Management
9) How To Follow Market News
10) Trading Psychology
11) Options Explained
12) The Greeks In Options Trading
13) How To Short Sell Options
14) Covered CALLS
15) Spread Trading
16) Online Brokers for Options Trading
17) Implied Volatility Calculators & Tools
18) Protective PUTS
19) Iron Condors
20) Straddles
21) Reading Level 2
22) Taxes
23) Trading Psychology Techniques
24) The Art Of Trading
25) Becoming A Jedi In The Stock Market
26) Futures Trading Explained
27) Commodity Trading 101
28) Regulatory Environments
29) How To Become A Millionaire
30) $100K In 100 Days
31) Wash Sale Rule
32) Behavioral Finance Part 1
33) Behavioral Finance Part 2
34) 5 Charting Indicators
35) Fair Value Gap
36) Insider Trading and Market Manipulation
37) Stock Chart Types
38) Moving Averages 101
39) Base vs Precious Metals
40) Electricity Trading 101
41) Trading Brokers 101
42) 5 Trading Strategies
43) 85% Trading Rule
44) Are Win Rates A Scam?
45) Futures Trading 101
46) ATR Indicator Strategy With The Greeks
47) MACD Indicator 101
48) Bollinger Bands Indicator 101
49) Wedges, Triangles, Flags and Pennants
50) RSI Divergence 101
