Futures Trading Basics Explained
Trading Futures was created to match commodities buyers with sellers. There are two types of futures traders, the physical and the financial trader. The physical trader either has product he wants to buy or sell. The financial trader is trading for pure speculation that the price will change providing a profit.
Futures today can be traded as easily as buy and selling stocks, all with the click of a mouse to buy and one more to sell. The following will help you understand what the product really is that you will be trading.
Futures are the major grains, meats, metals, energies, and many other products necessary to modern life. The purpose is to help a manufacturer control future cost of their needed inventory. At the same time letting producers, like farmers, be able to control the price at which they sell the product. Futures contracts can be used to take actual delivery of the product that each contract represents.
There are other Futures products that have nothing to do with commodities, but have been made available to be traded using the Futures market place. These are the major cash indices like the Dow Jones or the S & P 500. This gives you as a trader the opportunity to trade these indices by using Futures. They do not include an actual deliverable product so they are what is called cash settled.