Want Tips For Investing in the Stock Market? Here Are Some Great Tips For Trading Futures

Are you looking for tips for investing in the stock market? In this article I am going to give you some great tips for investing in futures.

Tips for investing in stock market - Trading futures

Before you start reading this article on tips for investing in stock market it is important that you understand what futures are. If you do not here is a quick definition, a future is a type of derivative instrument where two parties agree to transact a set of financial instruments or physical commodities for future delivery at a certain price.

Here is a simpler explanation, let's say you decide to buy a cable subscription. You are the buyer in this example; you enter into an agreement with the cable company to receive a certain service at a certain price for the next year. This is similar to a futures contract; you have agreed to receive a product at a future date at a certain price and at certain terms. You have secured the price for now and even if the price rises and by entering into this contract you have reduced your risk of higher prices.

The futures market has many risks, but the potential to make large profits is substantial due to the large amounts of volatility in these markets. There are many different futures markets and strategies you can use in them, they are.

Commodities

Commodities are physical products whose value is determined by supply and demand. These can include gold, grains and energy. One strategy you can use in these markets is, "Straddles". A straddle is constructed by holding the same number of calls (where you speculate that the price will rise) and puts (where you speculate that the price will fall) with the same strike price and expiration date. The basic idea is that you think the prices will remain volatile in the future, either moving up or down.

Another strategy is to buy a call option, purchase calls when you believe that the price of the asset will appreciate in the near future. Conversely you will purchase a put option if you believe the price will decline.

Currencies

When you trade currencies you speculate that the prices of a currency will rise or fall in the future. One strategy used is called scalping; this is when you attempt to make short term profits from the incremental changes in the value of a currency. If you do this over and over you will eventually make significant profits.

Indexes and interest rates

Timing strategies are extremely popular in these markets; two timing strategies used are cycle and seasonal trading.

Cycle trading is done by studying historical date and finding possible up and down cycles for an underlying asset. Commonly used cycles for stock index futures are the 23 week and 14 day cycle. Studying he price trends associated with cycles can lead to large gains for smart investors.

Seasonal trading is when you attempt to trade of the seasonal effects that take place in these markets. Historical data shows that most markets have similar patterns year after year. Knowing about these seasonal trends is an effective way to trade for profit.

Getting started in the futures market can be daunting for new investors. By reading and studying this article in tips for investing in stock market you will receive a good head start. Another good way to start is by concentrating on these four different futures markets, this will help to build your knowledge as you learn without increasing your overall amount of risk, then as you build confidence expand into trading other types of futures.

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