Futures trading on the stock exchange, necessary programs and examples of transactions
Many beginners, as well as experienced players in the foreign exchange market, cannot muster the courage to try themselves with
other instruments, limiting themselves to a narrow set of currency pairs. There are a number of myths around futures trading on the stock exchange, such as that it is very difficult, it is difficult to predict the price, and it is quite difficult to understand them.
Of course, the first thing that scares a newbie away from futures is the name of the symbol, which often does not have any associations with a product or stock, unlike a currency pair, where by looking at the name everything becomes extremely clear.
However, you don’t even think about how much you limit yourself and prevent you from revealing your potential by actually working on heavily forecasted currency pairs like euro/dollar and pound/dollar.
There are hundreds of such stories, and every trader who reaches the professional level tries to switch to futures trading due to the fact that it is more liquid and predictable.
The main points of trading futures on the exchange
Futures are a special type of exchange contract between the buyer and seller of a commodity, which is based on the principle of an agreement that you will buy the commodity on a certain day and for a certain amount. For a visual example, imagine that you have grown a ton of grain and your harvest reaches.
You can collect grain at the end of the season and sell it at the market price, or you can enter into a contract with the buyer that exactly in a month he will buy the grain at the current price, and not at the market price which will be in a month. Thus, you protect yourself from the risk of a price decrease, and the buyer, assuming that the price will rise by the beginning of the season, saves on the purchase.
This is what a futures contract looks like on the exchange; by buying it, you simply own this commodity, and if by the end of the transaction’s expiration the price for it rises, and you entered into a transaction at a lower price, then the difference will be your net profit.
You must understand that there are settlement and delivery futures. The essence of settlements is simple - these are ordinary speculations on your usual exchange without the obligation to pick up the goods. Deliverables are traded on commodity exchanges, and at the end of the contract expiration, your goods will be delivered to you.
There is simply a huge number of futures, but they can be divided into conditional groups.
The first and one of the largest groups is currency futures. The essence of their work is extremely simple: you enter into a contract to purchase a certain currency at the current price, and at the time of expiration of the contract your profit will be visible.
When analyzing currency futures, many traders make forecasts for the movement of currency pairs, since a strong trend correction .
The second group of futures are stock indices. For those who are not in the know, the indices are built on the basis of data on the growth of shares of the main companies in the state.
The third large group is Energy. Here you have access to contracts for oil, gas, fuel oil, gasoline and various energy products.
The fourth oldest group is designated as cereals. In this group, you have access to contracts for the main products of the agricultural industry, namely futures for corn, soybeans, wheat, rice, soybean flour, oats, soybean oil. A notable feature of trading in this category of assets is that its participants are not speculators, but large industrialists, which makes the price more stable.
To analyze possible price movements, various reports are used on the size of exports of the main countries exporting products, data on weather conditions, and yields.
The fifth major group is metals. You have the opportunity to enter into contracts for gold, silver, platinum, copper and other valuable metals.
Despite the fact that futures trading on the stock exchange takes place on special futures platforms, brokers have introduced a so-called CFD tool that will allow you to try trading various assets through your Meta Trader 4 trading platform.
Futures trading examples
For example, the AMarkets broker provides the opportunity to trade on 21 futures contracts, which include such basic ones as soybeans, corn, oil, aluminum, gasoline and other popular contracts. Brokers often separate them into subgroups in the MT4 trading terminal, so they are always nearby.
To see what the symbol means, the futures of which company or commodity you are trading, right-click on the list of currencies and enter the symbols menu. Next, you will see subgroups with currency pairs, so open the CFD group.
Opposite each symbol in brackets its meaning will be deciphered. You can also add the missing tools to the work panel by clicking on the contract that interests you. An example of symbol decoding can be seen in the picture below:
Trading futures on a commodity exchange is no different from trading currencies as you are used to. You can actively apply technical analysis, work with orders by placing stop orders and profits, apply trailing stops and use various indicators and advisors, as well as any additional functions that are inherent in the MT4 trading platform.
Also, in order to competently conduct your money management and understand the cost of a particular transaction, I recommend visiting the Amarkets company instrument specification page, where you can see more specific information on the size of one lot and the features of the instrument.
Do not forget that futures, like options, have an expiration date for the contract, namely the expiration date.
In order to know the expiration time for all instruments, Amarkets has created a separate contract expiration table, where you can see the date and month of expiration of the futures. You can find this table in the “Trading conditions” section.
In conclusion, I would like to say that trading futures on the exchange is not as complicated as it seems at first glance. It is much easier to predict a possible change in the exchange rate for some goods than for popular currency pairs, since the factors that influence the corn exchange rate are clearly an order of magnitude smaller than the euro or dollar.
You will find additional information on this topic on the Amarkets website . Thank you for your attention and good luck exploring new horizons!