Even the most experienced investors can find futures trading confusing. However, although the unique terms and trading strategies can be discombobulating, it still holds a strong allure for the money-minded. There are significant profits to be made in futures markets, providing you understand how they work and how to consistently achieve these profits. If you’re looking to get in on the act, read on to find out how to trade successfully.

How To Be Successful

Futures markets are the area where hedgers and speculators meet to predict likely fluctuations in the price of a commodity, currency or market index. As with any market, there are risks inherent in trading. but substantial profits can be garnered by those with the skill to foresee long-term and short-term gains.

Commodities

A commodity is a physical product, and its value is determined by the simple balance between supply and demand. Commodities trade in a centralised market, where investors and speculators aim to predict whether prices will rise or fall over a set time period.

One strategy is known as straddles. If the investor believes that the price will remain volatile, but is unsure of whether it will rise or fall, they cover themselves for both outcomes. The way that this is done is to hold the same number of calls (this is when you speculate that the price will rise) as puts (where you speculate that the price will fall), with the same strike price and expiration date for each.

A second strategy is to buy a call when you think that the price of an asset looks set to appreciate, or a put if you believe that it will decline. Although this is more risky than straddles, it also yields greater financial rewards when your gamble pays off.

Currencies

Like commodities, currencies can be traded by speculating on whether their price will rise or fall. The most commonly employed strategy is known as scalping. This is where traders look to make short-term profits off incremental changes in the value of the currency. By doing this repeatedly, the profits add up to a substantial amount, yielding a significant overall total. This strategy demands absolute discipline if you are to continue making small, short-term profits whilst avoiding large losses.

Indexes and Interest Rates

Investors who trade index and interest rate futures tend to favour timing strategies. Two of the most commonly used are cycle and seasonal trading. A cycle trading strategy uses historical data to find up and down cycles. Identifying price trends associated with them can be a highly profitable venture for the savvy investor. Seasonal trading, on the other hand, identifies varying trade levels year after year.

Try It Out

Making a start in a futures market can be daunting, so it’s best to ease yourself in. To start with, consider paper trading, which allows you to learn without risking your capital. What this means is that you mimic trades, either by yourself or with a market simulator, until you feel confident enough in your abilities to start trading properly. Once you’re ready to enter the market place, make sure that you use a futures broker you can trust, such as Sucden Financial. who provide experienced professionals to guide and support you.

When you do decide to take the plunge, make sure that you have as much experience as possible behind you. Although it can be mentally and monetarily rewarding, trading futures is a high-risk market, and you risk losing more than you make. There are many different methods and strategies which can deliver success, but the best is simply to ensure that you possess as detailed an understanding of your market as possible. If you want to turn a profit, do your research, trade wisely and hope for some luck – it’s that simple.