Is Trading Futures Complicated?

To many people, futures trading is a complicated, high stakes, risky business. However, this is not true. The misconception is due to the lack of the proper financial knowledge of and a clear understanding of its purpose. Here, you will learn how you can use stock index futures to manage the risk exposure of stock that you are holding.

Definition: Index Futures Trading is simply buying or selling a specified quantity and quality of a financial instrument to be delivered or settled at a specified time in the future at a price determined at the time of purchase and sale.

Institutional investors use equity(stock) index futures to hedge their positions in the underlying stocks in their portfolio.

Equity Index Futures - Nikkei 225, Hangseng & SiMSCI

The popular equity index futures are E-Mini S & P 500, E-Mini Nasdaq, mini-sized Dow, FTSE, DAX, Dow Jones Euro STOXX 50 and in Asia, the Japan Nikkei 225, Hongkong Hangseng, Korea KOSPI and Singapore SiMSCI.

Two of the most important parameters in trading futures are the price action and open interest. The prices of future contracts are driven by various factors, including both fundamental and technical.

Online Futures Trading

More and more traders are moving toward online trading platforms. Nowadays, traders and investors execute their trades via computer connected to the Internet.

With Internet trading, you can execute the trade and get confirmation almost immediately - there is no need to call your broker over the the telephone and wait for the trade to be confirmed. As for professional traders - no more long hours standing in the pit shouting and gesturing frantically.

Using Technical Analysis Methods

Most online futures traders rely on technical analysis to help them predict price fluctuation. For technical analysis, methods such as:

are frequently used to predict entry or exit price levels and timing.

Benefits of Trading Index Futures

  • Extremely high leverage of 10 times or more
  • Participate in the overall performance of stock markets
  • Sell first then buy later when market is bearish
  • Do not need to deliver shares physically or electronically
  • Online futures trading platform available round the clock

How to Get Started Trading Index Futures

The best way to get started is to get educated. There are many seminars offered by reputable broking houses, go and get involved. You can also learn futures trading from experienced traders. Try to get a mentor who specialised in that particular future contract that you intend to trade. With a good mentor, you will save a lot of times, money and avoid emotional stresses.