If you’re new to the world of futures trading, it can be a daunting task trying to figure out where to start. In this beginner’s guide, we’ll take a look at what futures trading is, how it works, and how you can get started trading futures in Canada.
What is Futures Trading?
Futures trading is an agreement to buy or sell a commodity at a set price on a future date. Futures contracts are standardized so that each contract contains specific details about the commodity being traded, the quantity being traded, and the delivery date.
Most futures contracts are traded on futures exchanges, which act as central clearinghouses for buyers and sellers. When you trade futures, you’re not actually buying or selling the underlying commodity—you’re simply speculating on whether the price of the commodity will go up or down. If you think the price of crude oil is going to rise, for example, you might buy a crude oil futures contract. If the price of crude oil does indeed increase, you can then sell your contract at a profit. However, if the price of crude oil falls, you’ll incur a loss.
How Does Futures Trading Work?
Futures trading is conducted through a futures exchange, which acts as a marketplace for buyers and sellers of futures contracts. When you trade futures, you’re speculating on whether the price of a particular commodity will go up or down in the future. You’re not actually buying or selling the underlying commodity—you’re simply betting on which direction you think the price will move.
If you think the price of crude oil is going to rise in the future, for example, you might buy a crude oil futures contract. If the price of crude oil does increase as you expect, you can then sell your contract at a profit. However, if the price of crude oil falls instead of rising, you’ll incur a loss.
There are two types of participants in the futures market: hedgers and speculators. Hedgers use futures contracts to offset risk in their physical businesses—for example, airlines might use crude oil futures contracts to hedge against rising fuel prices. Speculators use futures contracts to bet on which direction they think prices will move—they don’t have any physical exposure to the underlying commodity and are simply looking to make a profit from their speculation.
Investing in Canadian futures trading can be an attractive option for both short-term and long-term gains due to its low cost entry point combined with tax benefits associated with specific provinces, increased liquidity and improved pricing compared to other markets like stocks and bonds, as well as potential better overall returns compared with other types investments over time . It is important however that prospective investors familiarize themselves fully with how these contracts work prior engaging in any trades as they involve high risk levels which could result in substantial losses that outweigh any potential gains should things not go according your expectations or plan.