Futures

How does trading in the Futures work?
Another way to trade in financial markets is to get involved in contracts for futures which are often seen being used in the commodities market. Futures here refer to buying a commodity at its specific price today even if it will only be available in the future. This way, the producer of the commodity who sells the futures contract is assured a profit even if the commodity suddenly drops in value along the way. Meanwhile, the buyer of the contract hopes that the price listed in the futures contract will actually be lower than what the commodity will actually be worth so that it can be resold for profit.
Many of the world's most widely used products are traded in the commodities market. These include energy sources such as gas and oil, metals such as gold and steel, and food products such as wheat and corn.

There are many markets around the world where contracts for these commodities are traded, but the the most well known ones are the New York Mercantile Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade, the International Petroleum Exchange, the London International Financial Futures Exchange, and the London Metals Exchange.

Trading in futures follows the same basic procedures as the Forex in that both technical analysis of market trends and fundamental analysis of current events are needed to be successful. There are, however, some differences.

While traders can hold a currency pair indefinitely in the Forex and wait weeks, months, or even years before closing it, futures have a definite delivery date when it will expire. If a futures contract expires, it will automatically close itself at the current market price.

Futures can also only be traded on a stock market where a certain buyer or seller sets the rates, instead of a network of large market makers. Additionally, only specific amounts can be used to engage in futures trading. Some examples of these are gold features where each delivery consists of 100 ounces and crude oil futures where each contract involves the delivery of 1000 barrels.

Another is how they are listed since futures have a specific system for writing down commodities. In a listing such as NGQ0, the first 2 characters stand for the commodity, and the 3rd and 4th ones indicates the month and year of its delivery or expiration date. In this case, the commodity being traded is Natural Gas and the number 0 means the year 2010. The delivery month follows this scheme:

• January - F
• February - G
• March - H
• April - J
• May - K
• June - M
• July - N
• August - Q
• September - U
• October – V
• November - X
• December – Z

Traditionally, futures that have the highest liquidity because they receive the most buy and sell orders are those that are nearing its delivery date. This is because there is a chance that prices will undergo a sharp climb as it approaches its actual current value, which is attractive to traders.