Futures Market – What is it and why should anyone trade quotex trading withdrawal in it?
Wikipedia’s answer is that a Futures Market is where you can trade Futures Contracts. But what is it? Futures Contracts is a legal agreement for the purchase of specified quantities and prices at specified future dates.
Contract must always be emphasized. Futures Markets are different than, say, Stock Markets in that they trade contracts rather than shares. No, you’re not purchasing or selling shares of an organization. Futures Contracts involve an agreement among investors on the trade of a specified quantity of a financial instrument or commodity.
You can easily understand how commodities operate. The workings of commodities are fairly simple.
Southwest Airlines, on the other hand, made no money when oil was priced at 140 dollars per barrel. In the past, oil prices were cheaper and they negotiated Futures Contracts. However, delivery was not made until 2007/2008. Futures Contracts are being purchased now for delivery 2011/2012, once the oil cost is affordable.
Then you might say: That is all very well, but I don’t think that this really constitutes trading with strategies and a trading strategy.
Risk is inherent in each Futures Contract. Futures Contracts mitigate risk by using the asset’s value as a benchmark.
Southwest acquired risks. In the event that the price of oil fell below the amount they paid for, they would have paid more. They also reduced the risk of their investment because they expected that the price for oil would exceed what they had agreed to pay. They were able to make money with leverage.
The oil companies. Since they were confident that the crude oil price was going to fall, their contract with Southwest would not be affected. As the price of the oil increased, the company acquired more risk (and lost the additional income they would have made). It is possible that their leverage may not have been as effective as they could have.