A futures contract is an agreement to buy or sell a commodity or financial instrument sometime in the future. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. The only variable is price, which is discovered on an exchange trading floor. For instance, one gold futures contract represents 100 troy ounces of gold, while one crude oil futures is equivalent to 1000 barrels of crude.

Futures contacts are available on many commodities, currencies and stock indexes that are traded on regulated exchanges.

How can futures be used as investment instruments?

Futures contracts are widely used as highly leveraged investment instruments by individuals and institutions. Let us assume that an investor thinks the gold price can stage a rally soon, and he wants to take advantage of such an anticipated price movement. He can then buy gold futures contracts instead of buying and storing physical gold. The attractive point here is that only a small amount of capital is required to buy a large amount of gold in terms of futures contracts.

When you buy gold futures contracts for investment purposes, you will not have to take delivery of gold in normal cases. Instead you are entering into an account transaction of buying a standard amount of gold. In this way you are omitted from the unnecessary burder of buying and storing physical gold. Now suppose the price of gold did in fact rise in a month's time and the value of the gold futures will also increase. The futures contracts can then be sold to make a profit in the investment account.

It is worth mentioning that you can also make money in a falling market. In this case, investors sell futures contracts anticipating the prices to fall and buy back the futures after the prices have fallen. This will again generate a profit in their investment account.

Buying and selling of futures contracts take place instantly by placing orders through a brokerage firm on to futures exchanges. Many investors trade futures on a daily basis to profit from daily price changes.

Why futures markets are one of the most popular investment places?

Futures markets are highly leveraged which means that you need only a small amount of capital to control assets of larger value. For instance, you need to deposit only $1300 to buy nealy $30,000 worth of gold futures contracts. This leverage makes futures contracts as favourite investment instruments.

Leverage enables investors to earn good money if prices move in anticipated direction. On the other hand, the leverage can work agianst them if prices move in the opposite direction. Possible losses due to such unfavourable price moves can be reduced and controlled using various risk management techniques. In this way investors cut their losses short while letting the profits grow.

What commodities are available for futures trading?

Commodity futures contracts are traded in gold, silver, crude oil, sugar, cocoa, wheat etc., while stock index futures include S&P 500, NASDAQ 100, Dow Jones 30 etc. Currency futures contracts represent Euro, Japanese Yen, British Pound, Swiss Frank and many more.

Where are the futures markets located?

Futures markets are truely global in nature reflecting the supply and demand forces of commodities worldwide. Major futures exchanges are located in New York, Chicago, London, Tokyo and Frankfurt.

Why do some people loose money in financial markets?

There is a risk of loss in futures trading. And this is not to say that there exists good profit potential. It is worth giving a thought to why people loose money in futures trading. The reason for that is, most who trade futures have no trading plan and they are inexperienced. They feel they can buy and sell their favourite commodity and sit back and wait on the profits to roll in. Some investors trade commodities with the intention of making millions overnight, effectively loosing money to their greed and ego. With this type of approach, you will have a better luck gambling at race courses!

At SFB, we teach our clients how to apply sound trading practices that will greatly increase their chances of success. We pay more attention to risk management strategies for the benefit of our investors.

How much money can I make in futures trading?

Excellent returns can be obtained in financial markets by combining research recommendations with sound trading plans. Many investors trade on a daily basis to profit from daily price changes, while others grab powerful rallies and declines to their favour. To learn about the past opportunities, please check out commodity price charts that are free from us upon request.

How much money is required to open a trading account?

You may be able to open a trading account for as little as $10,000. However, many professionals suggest that an investment of $25,000 or more enables investors to take good advantage of price movements. The more you invest, the more contracts you will be able to trade as each contract requires a margin deposit.

How safe is my money? Are futures markets financially sound?

Absolutely, unequivocally yes! (This is not to say that trading losses are not accounted!). The Clearing Houses of the various commodity exchanges guarantee every transaction on their exchange. Moreover, your money is kept in U.S. bank accounts and is treated as seggregated accounts.

Where do I get detailed description about investing in futures markets?

Various investment / trading strategies are explained on this web site. Please visit the following links:

Investing in Currency Markets

Investing in Commodities

Investing in Stock Indexes

Advanced Trading Strategies

The best way to learn more about trading is by attending our FREE educational workshop. Please Register for the next available workshop.