The Law Dictionary

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Reasons You Should Trade Futures Definition & Legal Meaning

Definition & Citations:

For investors, trading Futures has the opposite appeal from that of buying stocks and bonds. Stocks and bonds are purchased with the intension of holding shares for an indefinite period of time and for making a profit when sold. Futures are contracts that require a buyer and a seller for the same commodity, natural resource, currency, or precious metal that will be traded within a specific time frame. With the capability to electronically trade Futures 24/7 as markets open and close around the globe, traders have the advantage of continuously monitoring an area of interest and being able to buy or sell in real time. There are short periods of time, on weekends and from 4:15 – 4:30 EST Mondays to Thursdays, when Futures are not traded. Profits from Futures are taxed at the lower Capital Gains rate rather than as ordinary income.

–Trading Futures is a very fluid market that sees millions of contracts daily. A new investor will benefit from studying the market before buying or selling and from engaging a broker who provides technical advice on what and when to trade. A broker helps an investor develop a trading style to potentially provide the most profitable trades.

–Trading Futures does not require someone to physically buy or sell a commodity. A contract is made to either buy or sell a commodity at a specified price before a certain future date. An example would be if someone contracts to sell April wheat for a stated price, the investor will want to sell before April when most buyers have left the market.

–Investors can watch the activities in foreign markets when home based markets are closed. If there is any unusual overnight occurrence, such as a Tsunami or earthquake, traders can sell contracts that will be negatively affected and buy contracts that will benefit from the occurrence, all before day exchanges open.

–Traders can monitor real time fluctuations in foreign currencies and either buy or sell these financial instruments in a few minutes or a few hours. Trading with a help of a broker provides valuable assistance when operating in a market that has a lot of big time traders who can edge out small traders.

Nearly 70% of all Futures contracts are transacted through the Chicago Mercantile Exchange (CME). The New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) are two additional large worldwide firms for trading Futures.


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