Futures Trading Strategies that You Might Not Know

Predicting the value of a commodity or an index at some future date is essentially involved in futures trading. To benefit from the rise and fall in prices investors in this market employ useful futures trading strategies. Below are some of the strategies in the market.

 

The Going Long Strategy: If an investor enters the futures with an agreement to purchase and receive the delivery of the commodity set at a particular price, an investor is said to be going long. From an expected increase in the price of futures, the investor is attempting to make profits. For example, in June you have your initial margin now at $2,000; you will buy a September gold contract that costs $350,000 for 1,000 ounces gold ($350/ounce). You are said to be going long because you are expecting the price of the gold commodity to increase in September when the contract will expire. 

Come August and the price rose by $2; so the price of your gold can be sold at $352. With this, you can already be at the verge of making money trading futures. The price of the contact will be $352,000, if you decide to sell at this month. You can make 100% profit and have a high leverage because your margin was $2,000. Yet, the price of gold may also decline by $2 and that will give you 100%. Thus, you need to actively respond to margin calls, throughout the period you are holding your contract.

The Going Short Strategy: In this approach, to sell at a certain price, you enter the futures with an agreement. You will make profits from the falling levels of prices. Thus making you earn money, you can sell high at this moment and you can repurchase the contract at a lower cost in the future. If for example, through research you have found that oil prices will go down for the next six months. You can sell your contract now and buy it again within the months when the price of oil has declined. From the declining market, if you can make profits from it you are said to be going short.

The Spreads Strategy: In going long and going short strategies, at present in order to benefit from the rise or decline of a commodity's price at a future time, you are essentially buying or selling a contractor. Another commonly used strategy in futures trading is the spreads.You need the price difference of two varied contracts of same commodity, in this approach. This strategy is the most traditional in the futures market, in trading. In comparison with the other two futures trading strategies mentioned, it is also safer. Different types of spreads are used.