home.saxo is an investing strategy that involves taking a position on the future price of an asset. Futures contracts are standardized agreements that are traded on exchanges.
The most common type of futures contract is a commodities contract, which gives the holder the right to buy or sell a particular commodity at a set price on a specified date in the future. Other futures contracts include financial futures, which are based on interest rates and currency exchange rates, and stock index futures, which are based on stock market indices.
Buying and holding
It is the simplest and most favored way to trade futures contracts. The investor buys a contract and then holds it until it expires. If the underlying asset price goes up, the investor makes a profit. If the price goes down, the investor loses money.
Selling short
It is the opposite of buying and holding. The investor sells a contract and then repurchases it at a lower price before it expires. If the underlying asset’s price goes down, the investor makes a profit. If the price goes up, the investor loses money.
Buying and selling
The investor buys a contract and then sells it immediately at a higher price. If the underlying asset price goes up, the investor makes a profit. If the price goes down, the investor loses money.
Scalping
It is a trading strategy that involves holding a contract for a brief period and then selling it immediately. These windows of trading last anywhere from a few seconds to a few minutes. Scalpers hope to make small profits on each trade that they make and let those profits accumulate.
Swing trading
It is a longer-term trading strategy that involves holding a contract for a few days or weeks and then selling it. Swing traders hope to make more significant profits than scalpers.
Benefits of trading futures
Leverage
Futures contracts offer leverage, which means that investors can control a large amount of the underlying asset with a small amount of capital. It can lead to higher profits if the asset’s price goes in the desired direction. However, it can also lead to higher losses if the price moves against the investor.
Margin
When an investor buys a futures contract, they only have to pay a small percentage of the value of the contract as a margin. It allows investors to trade with more capital than they would otherwise be able to.
Liquidity
Futures contracts are highly liquid, meaning they can be easily bought and sold. It makes it easy for investors to enter and exit positions.
Risks of trading futures
Illiquidity
Some futures contracts are not very liquid, which may be challenging to sell. It can lead to losses if the asset price moves against the investor.
Counterparty risk
Futures contracts are traded between two parties: the buyer and the seller. If the seller of a contract defaults, the buyer may not receive the total value of their investment. It is known as counterparty risk.
Settlement risk
When a futures contract expires, the buyer and seller must settle their positions. If the underlying asset’s price has moved against the investor, they may be required to make a payment to the other party. It is known as settlement risk.
How to trade futures
Choose an asset to trade
The first step is to choose an asset that you want to trade. The most common assets traded are commodities, stock indices, and currencies.
Choose a broker
The next step is to choose a broker that offers futures contracts. Make sure to compare the fees and commissions charged by different brokers before making your choice.
Open an account
The third step is to open an account with your chosen broker. You will need to deposit money into this account to trade.
Place a trade
The fourth step is to place a trade. You will need to specify the type of contract you want to buy or sell, the price you are willing to pay or accept, and the contract’s expiry date.
Monitor your trade
The next step is to monitor your trade, which means keeping an eye on the underlying asset’s price and ensuring that you are still in profit.
Close your trade
The final step is to close your trade. It involves selling your contract before it expires. You can do this at any time, but you will only make a profit if the underlying asset’s price has gone up since you bought the contract.
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