Futures trading is trading in the future price of something. It could



be a share in a company, a commodity or a foreign exchange pairing. A

builder starting a series of new building projects knows he will need

a certain quantity of cement for the job. He won't need it all at

once. Some of it won't be needed for several months. But he still has

to cost the job so he can start advertising his houses at a certain

price and attract prospective buyers.

He may therefore purchase cement futures. He normally pays only a 10

per cent deposit on the agreed price, but the important thing is that

it guarantees a price for him, so he can work out his profit margin

and set a price for each house. If he couldn't purchase a futures

contract in cement he would be forced to gamble on the price of cement

at the various times he needed it.

The futures market in commodities covers everything from gold to pork

bellies, and trading in it by merchants and farmers is known as

"hedging". Most people who trade this market nowadays are speculators,

who quite lawfully seek to profit from the price movements of major

commodities, currencies and indices, etc, and believe they can

correctly forecast the direction of the price level.

If you choose to specialise in just two or three commodities, for

example, you can become very adept at forecasting the price movement,

taking into account various factors which influence the price, such as

the weather, shortages of materials, and so on. In the days before the

internet many people used to do this as a hobby without being able to

actually trade and make any money. Having an account with a

stockbroker involved depositing a hefty amount of money, out of the

reach of most people.

But with the internet, stockbrokers have been able to automate many of

the tasks that formerly had to be carried out manually by staff. The

costs savings that resulted were used to generate more business by

offering accounts that were largely run online through a computerised

interface and advanced, expensive software.

In spite of the initial investment needed, the cost of running these

accounts is much lower than with standard accounts. The fees charged

are therefore much lower, hence discount futures trading.

The promise of the chance to make high profits with a discount futures

trading account has to be balanced against the high risks involved.

High leverage is used to control small movements in the price with a

comparatively small amount of capital. But this means you can lose a

trade as easily as win one, and with it all the money you have risked

on that trade.

If you bear this in mind and proceed with caution then you can go on

to become very successful with futures trading. Take all the advice

you receive from your broker with a pinch of salt, and seek out

someone who is a successful financial trader and who is willing to

teach you how to be equally successful. They are around if you look

for them.