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In the stock trading industry, many people have garnered a lot of money from futures markets. It is only in this arena where people who have limited capitals can actually make substantial profits even in a short period of time. But because like any other market, this involves a lot of risks and may cost you significant losses, people may often fear to get involved. Despite its bad reputation however, many experts would claim that futures trading could only be as risky as you want to make it. And if you take on good strategies and give yourself the proper exposure, then this can make you very rich. Futures are standardized and transferable contracts that require a buyer to purchase a stock at a specific sum and within a certain time period in the future. This contract gives the buyer the obligation of purchase, and the seller the obligation to deliver the specific asset traded. Unlike options, futures contracts obligate the traders to buy and sell instead of just merely giving them the right. People basically profit from futures by performing speculations in order to provide liquidity and to assume risks for price fluctuations in the market. These valuable functions provide them with substantial returns and potentially large gains. But take note that along with these, substantial risks are involved as well. Trading futures has become quite popular in many markets, especially in day trading. These kinds of trades offer a wide variety of markets and it can be traded at a low cost. Futures can be traded in both up and down markets. If a particular trader expects the market to go up, a long trade is usually done wherein the trader buys a contract and then sells it. On the contrary, if a trader believes that the market will go down, and then he will most probably make a short trade by entering a trade through selling a contract and then exiting by buying another contract. With this system, traders are able to profit regardless of what direction the market trends are going. This is the main reason why most traders are only concerned if the market is moving at all, instead of which direction it is actually going. In futures trading, instead of taking or making deliveries, a trader merely speculates his position in the market’s volatility by predicting directions of trends. If prices move in the right direction, then the trader would be able to profit. If this does not happen, then a trader would experience some losses. This particular arena in trading can be very promising, but it involves so many risks as well. But if you are well experienced in trading stocks and have adopted quite an understanding in the different trends, behaviors and strategies that the industry has to offer, then chances are, you may probably do well in this particular playing field. All of this may sound pretty easy at the moment, but if you are planning to engage in futures trading, make sure that you do your research and prepare yourself with the necessary knowledge and skills to successfully execute transactions. Along with huge profits possible, there are a lot of risks involved and trading futures without the right background can be very detrimental. In trading, it is quite common for the terms options and futures to be used interchangeably. Although these two contracts have a lot of similarities when it comes to principles, they are actually two very different things and therefore interchanging them when conducting trades in the market can be a very lethal mistake for anyone. Let us learn the differences between these two contracts in order to prevent making the wrong decisions in buying and selling rights for stocks or commodities. Through this, we may just be able to prevent risks and maximize chances for profit. An option is basically the right to buy or sell a specific amount of stock, currency, or whatever commodity offered in the market. This contract basically allows an individual to enjoy, but to necessarily become obligated, to exercise these rights. This contract can only be valid for a specific period of time, and commodities traded can only be bought and sold at a certain fixed price. On the other hand, a future is a transferable contract that requires the delivery of a certain stock, currency or whatever commodity traded. Like an option, the delivery of the trade is done through a fixed price stated in the contract and within a time frame, so one should not go beyond the expiry date. However, it is very important to take note that a holder is obligated to exercise the conditions of the contract unlike in options where the holder can have the liberty of deciding. Aside from the fundamental difference between the two contracts on rights and obligations, there are also other differences that include commissions, the size of underlying stocks or commodities traded and how gains are realized. In a futures contract, an investor has the liberty to sign into the contract without paying upfront. However, an investor cannot take hold of an options position without paying a premium to the contract holder. The option premium therefore serves as payment for the privilege to not become obligated to purchase the underlying commodities in cases wherein there are unfavorable shifts in prices. Another major difference between options and futures is also the size of the underlying positions that can be traded. Usually, futures contracts would include much larger sizes for the underlying positions as compared to that included in options contracts. Because of this, the obligations included in futures make it riskier for a contract holder to trade due to the possibility of losing so much. Lastly, the two contracts differ with how gains are received by parties involved. For options contracts, gains can be attained in three methods. Either the holder exercises the option, purchases an opposite option, or waits until the expiration date arrives to be able to collect the difference between the price for asset and the strike price, so he or she could get profits. However, profits for futures contracts can only be realized by either taking an opposition position or through the instant change in the value of positions at the end of each trading day. Knowing about the differences between an options contract and a futures contract can help broaden your knowledge in stock trading, and this can surely prevent you from making the wrong decisions if ever you decide in joining this particular arena. Futures and Options Information
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