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​What is Futures Trading?​

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​​​Futures Trading is the buying and selling of Futures contracts, which are standardized agreements to buy or sell an asset at a predetermined price on a specific Future date. These contracts are traded on regulated exchanges and cover various asset classes, including commodities, stocks, bonds, currencies, and interest rates.

How Do Futures Contracts Work?

A futures contract represents an agreement between two parties:

1. The Buyer (Long Position) – Agrees to buy the asset at a set price on the contract’s expiration date.
2. The Seller (Short Position) – Agrees to sell the asset at the agreed price on the contract’s expiration date.

Example:

• A trader buys a crude oil futures contract at $80 per barrel for delivery in three months.
• If oil prices rise to $90 per barrel, the trader can sell the contract for a profit.
• If oil drops to $70 per barrel, the trader takes a loss.

Key Features of Futures Trading
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Leverage – Traders control large contract values with a small initial margin deposit.
Standardized Contracts – Futures contracts have fixed specifications (e.g., contract size, expiration dates).
Liquidity – Many futures markets, like S&P 500 E-mini (ES) or Crude Oil (CL), are highly liquid.
Mark-to-Market Pricing – Daily settlements ensure profits/losses are realized in real-time.
Expiration & Rollover – Traders must close, roll over, or take delivery before expiration.

 Types of Futures Contracts

Commodities: Crude oil, gold, silver, natural gas, wheat, coffee
Stock Index Futures: S&P 500 (ES), NASDAQ 100 (NQ), Dow Jones (YM)
Currency Futures: Euro (EUR/USD), British Pound (GBP/USD), Yen (JPY/USD)
Interest Rate Futures: Treasury Bonds (ZB), Eurodollar Futures (GE)
Crypto Futures: Bitcoin Futures (BTC), Ethereum Futures (ETH)

Why Trade Futures?

Hedging – Farmers, oil producers, and corporations use futures to protect against price fluctuations.
Speculation – Traders use futures to profit from price movements without owning the asset.
Arbitrage – Traders exploit price differences between markets to make risk-free profits.
Diversification – Futures offer exposure to global markets and asset classes.

Risks of Futures Trading

Leverage Risk – High leverage can lead to large losses if the market moves against a position.
Margin Calls – Traders must maintain margin requirements or risk liquidation.
Volatility – Price swings can cause rapid gains or losses.
Liquidity Risk – Less liquid contracts may have wide bid-ask spreads.

Key Takeaways

Futures are standardized contracts to buy/sell an asset at a future date.
Traders use futures for speculation, hedging, and arbitrage.
Markets include commodities, indices, forex, and bonds.
Futures involve leverage, which increases both potential profits and risks.

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