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Strategies for the Futures Markets

In plain and simple terms, the futures market is where two entities agree to buy or sell an asset or commodity (called a futures contract) at a fixed price and at a predetermined date in the future. As a forex trader you should have a futures strategy in place to gain maximum profits.

There are several forex futures strategies that a trader can employ, but it should be stressed that a great deal depends on what it meant to be accomplished. One common goal of a futures investor is to utilize the derivative as a hedging tool.

The structure of a futures contract -buying and/or selling at a fixed amount regardless of market fluctuations- allows a forex trader to conduct business without worrying about any additional expenses. In addition, the following futures strategy can also help offset a loss in the value of an asset in case of adverse market movements.

If you are holding stocks in Company X and expect its value to go down in the coming weeks, you can use a futures contract to offset this. Buying a futures contract at the current market level (3,000 points) means that should the stock fall to 2,800 points, you will be able to negate this by selling the futures contract, whose value is fixed.

Of course, this futures strategy can also work against you, in case the futures contract value goes up, as you will not be able to profit from it. if you want to profit from a rise in futures values, you have to purchase a put option. The cost depends on the premium. If you are going to do this, be aware that the price you pay for the put option could negate whatever gains you garner in the market.

When using a put option in your futures strategies, the key element is to make sure that the premium is much lower when you close a contract than when you open it. Another factor you have to consider is the initial margin payment. Include these elements when strategizing to ensure that you have a profit.

Speculative futures strategies, on the other hand, take on a totally different approach. The focus of a forex futures speculator is not so much the consummation and delivery of the contract as it is the price fluctuations of the commodity, for this is where profits can be made.

The basic futures strategy for speculators is that, if there is an indication the commodity price will go up, they will buy, and should there be indications it will go down, they sell. Because speculators employ leverage, the potential for greater profits and loses is magnified. Clearly, an essential part of a speculator's strategy is to study fundamental analysis, as this can help determine price and market direction.

Whatever forex future strategies you desire -be it for hedging or speculation- it is important that you obtain as much information as possible concerning the contract you will enter in. Consult your broker about the proper risk management setup needed.

There is great potential for profit in the futures markets. The vital part in any futures strategy is to learn and be informed, as much as possible, to help avoid losses and gain more profits.

 

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