Things to Consider When Trading Futures Contracts or Options

by Vinaya HS on March 8, 2018

in Finance

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As you begin trading in futures, there are some know-hows you must take care of. Talking about those considerations one by one, let us begin with selecting a broker.

Select a broker or brokerage firm: To trade futures, you need to create an account with a brokerage firm. Your broker must grant you the access to all the futures. You can also select a broker that specializes in the futures trading. To select your broker, the things to know are his commission rates, margin, trades he handles, service provided, customer service, etc. It is your choice to go for a full-service broker or a discount broker. A full-service broker will provide you an expansive service and advice and may charge a higher fee, whereas a discount broker will ask you to do most of the things and will obviously charge lesser.

Type of Futures Market: Almost all the futures contracts are same, but you should be aware of the broad groupings. The main categories of futures contracts are:

• Equity Index
• Agriculture
• Interest Rates
• Energy
• Metals
• Currency, etc.

You can choose what to trade. You may also continue with what you were doing before. Like if you are habitual in trading in stocks, you can do futures trading in equity indexes.

The type of Trade: A novice can begin trading with the buying and selling a futures contract. If you have a long-term vision, you start expecting to earn profits from the market. The losses ate limited because the price cannot go lower than the $0 even if the trade does not favor you.

Trading short is also active trading as it permits you to get the benefit of both the rising and the falling markets. You can also go for spread trading. With this kind of trading, you can enter a long and short position in the futures contracts simultaneously. This way you can get profit from the price difference between the two. You can also hedge against the risk this way. Another strategy of you is hedging. Here you can sell a futures contract to balance your position in the cash market.

Trading Nifty50 Futures: The advantage of trading futures is that the traders have access to any major stock index or currency in the futures markets. NIFTY50 futures provides a variety of options. Since India stands as a leading and an emerging market, the NIFTY50 futures contracts have become a fabulous trading instrument. Before you start trading the NIFTY50 futures markets, you must know these things:

• The NIFTY50 index is a leading stock market index for the Indian equity markets on NSE. Until 2013, it was known as S&P CNX Nifty Index.

• The NIFTY50 futures contract is priced in dollars, while the NIFTY50 index is priced in rupees.

• Trading on the NIFTY50 futures is similar to the trading hours from Monday to Friday. The timing is from 4pm of the previous day will 5pm on the present day.

• It has a low trading volume and low trading hours.

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

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