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Successful Futures Trading

May 21, 2008  |  Difficulty: Easy

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Basic Facts about Futures Trading

Futures markets have been described as continuous auction markets and as clearing houses for the latest information about supply and demand. They are also known as the meeting places of buyers and sellers for the ever-expanding list of commodities which include agricultural products, metals, petroleum, foreign currencies, and stock indexes to name a few.

Basic Training for Futures Traders

A recent survey was taken by more than five hundred experienced account executives requesting them to provide their very best suggestions for successful futures trading. The following answer proved to be the most common one among the results: Follow the trends. This may prove to be one of the most difficult pieces of advice for a trader to adhere to because the personality of the typical futures trader is not one of the crowd.

Why Most Futures Traders Lose Money

Futures traders often trade without a plan, and don’t define specific risk and profit objectives before trading. Even if they establish a plan, they will “second guess” it, and end up not following it, particularly if the trade is a loss. With several profitable trades, many speculators may become wild and liberal in their trades, and begin basing their trades on hunches and long shots, rather than sound fundamental and technical reasoning. They may decide to put their money into one deal that “can’t fail.”

Option Valuation

The option premium or the price of an option equals the option’s intrinsic value plus its time value. An option has intrinsic value if it would be profitable to exercise the option. Time value, or otherwise known as extrinsic value, reflects the amount of money that buyers are willing to pay in the hopes that an option will be worth exercising before expiration.

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