About Futures & Options trading

History

Modern futures markets date back to the rice futures contracts used in Japan since the middle of the XVIII century. In the US, where the majority of futures transactions are now committed, the trading grain futures contracts began in the middle of the XIX century in Chicago. At the present time, trading of derivatives including futures and options contracts is the world’s leading financial industry; contracts on the great variety of commodities, financials, currencies and indexes are traded. The range of available markets grows year after year.

A futures contract is a standardized contract between two parties to buy or sell a specified amount of a commodity at a fixed price on the appointed date in future. The term “commodity” usually means a wide range of assets: currencies, bonds, stock indexes of the largest world economies (for instance, S&P 500, Dow Jones, FTSE, DAX) and commodities – for example, energy resources (oil, gas, gasoline), metals (both precious and industrial), and agricultural markets (wheat, corn, soybeans, sugar, coffee beans, cotton, lumber).

There are delivery and non-delivery futures contracts. There are two ways to close the delivery futures contract: by delivering an underlying asset or making an opposite transaction to the initial one (i.e. offset transaction); naturally, there is only one way to close a non-delivery futures contract, which is committing to an offset transaction. The market price of the futures contract depends directly on the current supply and demand: if there are more buyers than sellers, then the price will rise, that will attract new sellers and restore the balance between buyers and sellers.

An option for a futures contract, as opposed to the futures contract, is not the duty, but the right to buy or sell a futures contract at a strike price prior to the expiration date (or on the expiration date). For having such a right, traders pay the price called premium.

Market participants

The participants of the derivatives market can be divided into two groups – speculators and hedgers.

Speculators try to get profit out of price changes. Futures trading allows to control assets that have much larger value than the deposit (this is called marginal trading). For example, having $3,000 on the account you may buy/sell 125,000 Euro, gold worth of $50,000, oil worth of $45,000. Apart from that, futures contracts allow traders to get profit from both the rise and fall of the markets. Thereby, the futures industry attracts a significant volume of risk investments, which makes the derivatives market the world’s most liquid market.

Hedgers, as opposed to speculators, use the derivatives markets to limit the risk connected with the underlying assets. Hedging is taking a futures position opposite to the spot-market. For example, an airline company in order to control risk of the rise of fuel prices has to take a long position on it. Nowadays hedging risk-management is widely used both by small and large companies all over the world.

Advantages of exchange trading of futures and options contracts

The derivatives markets, which include futures and options contracts, grant a range of unique advantages to their participants:

  • A huge range of instruments traded at dozens of exchanges worldwide available for internet-trading from a single account. Trader automatically raises his chances to find the optimal trading opportunity on the market, if he/she broadens the range of available instruments and markets, every one of which has its own unique volatility, historical predisposition to trending or flat movements and other features.
  • Marginal trading, which significantly broadens investment opportunities and potential rate of return.
  • Full transparency of transactions and legal protection (the trading accounts are opened with one of the largest futures brokers in the world).
  • Commodities markets are very attractive to a trader due to their volatility (fluctuation of prices). It is the volatility that allows traders to make profit. Several percent daily movements are not a rare thing in commodities, and you can find strong trends that you will never see in any other markets.
  • Unique trading strategies that may be used only on the derivatives markets, including futures and options contracts, for instance, different types of calendar/inter-commodity/inter-market spreads and options’ strategies.

To get a demo access to exchange futures trading you have to fill in the form and after that you will get instructions on how to install the software along with a login and password.

To open a trading account for futures and options trading you have to fill in the form and after that our specialists will contact you and explain the next steps in the procedure of opening the account. More details can be found here.

 

Do you want to trade without a risk? —

 

Are you ready to trade with real money? —