Futures are there to be traded; however, it is essential to remember that they are not for everyone. You must fully understand all risks before using any futures trading strategy.
The very word ‘futures‘ can put people off them because it sounds so risky. However, if your chosen commodity has a good chance of making you money, then there is no reason you should let that stop you from giving it a go! When choosing to trade in the financial markets, many people have an overriding desire to do well quickly. They ignore terrible news about shares or commodities and only focus on the good stories.
If something looks like it might make money straight away, then even though they know on some level that it is risky, they go ahead and buy into it. The temptation to do this is even more significant when trading futures, as the contracts are often for large amounts of money.
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Several different futures are available for traders looking to buy into contracts based on interest rates, stock indexes, and currencies.
Futures trading strategies
Speculation futures trading:
These are the most straightforward futures trading strategies to use when investing in UK contracts. They aim to take advantage of price fluctuations without involving any complicated analysis or fundamentals. The key thing with these types of trades is to be quick and agile so you can get in and out quickly before the market starts moving against your trade for too long.
Market trading:
You would use one of these strategies when you have just finished analysing a company and want to buy into its future value. By purchasing, put options on its stock exchange listing or even just taking a speculative punt on it based on how confident you feel about the direction prices will move in. This type of trading strategy is relatively simple because there isn’t any analysis involved.
Arbitrage Strategies:
This is where futures trading strategies start to get slightly more complex. It involves taking advantage of price differences in different markets for the same product or instrument. It can be precarious because you essentially buy something on one market and sell it immediately on another at a higher price. If you don’t manage it quickly enough, prices may move against you before securing your profit margins.
Trend trading:
With this approach, traders attempt to identify whether the market is uptrend or downtrend and then trade accordingly. If a trader predicts that the market is heading lower, they might sell futures contracts in anticipation of a price decline. Conversely, if a trader believes that the market is headed higher, they might buy futures contracts in anticipation of a price increase.
Swing trading:
This approach involves buying and selling contracts to capture short-term price movements. Traders who use this strategy typically hold their positions for a few days or weeks, rather than months or years like trend traders.
Hedging:
Hedging is when a trader uses futures contracts to protect themselves from potential losses on an existing position. For example, if a trader has bought shares in a company, they might buy futures contracts to protect themselves against a fall in the share price. This is known as hedging your bets.
In conclusion
These are the most popular futures trading strategies that work well when investing in UK contracts. Whichever strategy you choose, it is essential to remember that futures trading can be risky, and it is possible to make – and lose – a lot of money very quickly. With this in mind, it is essential to trade with caution and only use risk capital.
