The Lowdown on Futures and Options Trading

2009-02-02 14:58:03

( Financial )



Considering a career in futures and options trading? Here we will look at the basics of trading in futures and options.

For many investors, investing in commodity futures trading can be risky. However, some investors see it as a safety net against drastic changes in price which occurs on a day-to-day basis in the stock market.

Future and options trading can be complicated because it involves derivative or hybrid investments. It does not involve ownership or loan repayments instead you pay a bond. Unlike stock trading, futures and options does not rely on what will happen to the actual product.

Other investors consider futures and options trading as a means of minimizing their investment risks. For example, farmers who sell their grains at a good price will get security in case the price of grain should decrease. Investing on stock options can be a good way of offsetting their losses should the market drop.

In addition, most investors venture into futures and options trading due to the fact that a huge loss can be compensated by an enormous gain. Even small players in the trading market find it worthy of their investment because even though the stakes are high, the returns are boundless.

While the agreements that investors make are designed for the future, the future they signed is actually within reach. In the example above, any contract made on grains and other food sources are good for one year. However, contracts on certain futures can last for a minimum of five years.

In the case of options contracts, majority of them have an expiration of less than five months but there are some options that reach as long as seven months.
Products that belong to the so-called LEAP options are not covered by this ruling. They are long-term contracts that can last up to two and a half years.


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