5.3 Futures

Instruments and Platforms

Let us look at Futures

  1. Securities - Usually done for securities like Stocks, commodities or bonds. What is the relevance of a futures contract?

  2. Protect from price changes – The Futures Contracts (FCs) is to protect produces and suppliers from price changes.What does that mean?

  3. Risk Management - Basically, price changes protection is used as a risk management tool to protect producers from falling prices and supplier from increasing prices.

Futures is for the future. If the producer is producing vegetables and suppliers, like your supermarkets, are buying from them, the futures contract is done to bind them into a contract for the future so that the producers are protected from falling prices and suppliers are protected from increasing prices.

Let us now go live chart to see how it looks like.

We are now on the Dow Jones futures market. How do we actually choose the Dow Jones futures market? On Metatrader, you have to click on the market watch. Once you have done that, you can right click on any of the symbols, and you can choose the futures category and you will be able to see all the futures. Do remember that there is an expiry date for the futures as well. Once you have done that, it will appear in the list. You could then drag and drop it onto the screen to view the chart of the particular market.

Thereafter, you could then trade it by selecting the trading option and place a new order with an Entry, SL and Target and your risk management, which we will be talking more in our education centre. We do this in our live trading room.

That will wrap up on the futures section of the life example.

Just as a quick recap, the price that you see on the chart for a futures trade is not the same as the market price. The futures price is done to protect producers and suppliers, just as we have spoken before, from price fluctuations and changes. It actually started from the agricultural industry to protect the farmers who were the producers and the suppliers who were the supermarkets at the forefront.

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