Future Trading Systems

Written by Jacey Harmon
Bookmark and Share

Future trading systems are available for an individual investor who trades futures contracts. There are a variety of different styles of futures contracts that can be traded at several exchange locations throughout the United States. Commodity futures such as orange juice, oil and grains; Financial futures such as currency and interest rates; and Index futures such as equity or commodity based indexes are all available to trade.

As with any style of trading there are several different trading systems to choose from. In the futures markets there are two main players, hedgers and speculators. Hedgers are those who are in the market to protect themselves from risks involved with price fluctuations. Speculators are those who intend to profit from the price fluctuations. Depending on what type of hedger or speculator you are will determine what type of strategy to use.

A Summary of Future Trading Systems

For traders who are hedgers, there are two main types of trades to use, the long hedge and short hedge. The long hedge involves buying a futures contract to guarantee a price that will be paid in the future for a selected entity. A business that utilized corn may expect corn prices to rise over the next year. This business will buy a futures contract to guarantee a lower price. The short hedge involves selling a futures contract to ensure a certain price on delivery. A short hedge is likely to be used by a corn farmer that believes that corn prices will be lower at harvest time.

Traders who are speculators have a wide variety of trading strategies to use. Depending on the style of contract you are trading and what type of trader you are will determine what strategy to use. Most strategies will have similar characteristics. Every strategy contains some sort of market based analysis, also known as technical analysis. This is the study of price and volume trends in the market. A popular technical analysis tool is the stochastic index. This measures the price of a contract against its price range over a given time period. This type of tool is used to time buys and sells by indicating "overbought" or "oversold" conditions.


Bookmark and Share