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| Introduction |
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Futures are traded in an exchange and they are mostly contract basis and each contract has a contract value. The contract value is calculated multiplying the current market value with the value of one pip of the instrument you are trading. Usually, they have an expiry date and you need to liquidate your position before the expiry date. In futures, there are a number of instruments available like Currency Futures, Commodities, and Index futures. Some are monthly contracts while others are quarterly contracts.
The advantage of trading futures with stocks is it has a very high leverage. Meaning, you can trade a larger value with a smaller amount of money. This is often called margin trading. You can make a lot of money with less investment but also you can lose all your investment if you are not careful. Firstly, you need to know about the instrument you are trading in. The instrument which we specialize is INDEX FUTURES; E.g. of indices are Japan -Nikkei 225, German Dax, London Footsie 100, US - E mini Russell 2000, E mini S&P 500, E mini Nasdaq etc.
All these are traded on the relevant exchanges in their countries specified. The difference between these instruments and the stocks are these instruments represent a basket of stocks. They are traded separately on the exchange have to be valued by spot prices on expiry of the contract. When you trade stocks, you are only concerned about the performance of that company you are buying but when you trade Futures you look at the indices. If the economy is doing well then the indices will also be doing well and vice versa. Therefore, when you trade futures your risk is spread compared to stocks.
Foreign exchange (FOREX) is trading in currencies. When you go on holidays I am sure you want to bring with you the currency of the visiting country. To change a currency, you will usually sell your local currency and buy the visiting country’s currency. In Forex you will do the same thing, but you do not exchange physical money. In turn, you will be trading on contract basis. Forex trading, which is called Margin trading, is a very high volatile instrument. It is a highly risky instrument at the same time highly rewardable provided you understand the market. It is in fact one of the highest leverage instrument and highest liquidity in the market. An average of 3 trillion worth of transaction takes place daily.
United States Dollar (USD) is the leading player in the market. European Currency (EURO), Britain Pound (GBP), Japanese Yen (JPY), Switzerland Franc (CHF) are the other four main currencies that hit the highest volumes daily. When we say EURUSD that means EUR is the base currency and USD is the counter currency. Meaning, when you buy or sell you is referring to the EURO. Major crosses are EURUSD, GBPUSD, USDJPY, USDCHF, USDCAD and there are also crosses like EURJPY, GBPJPY, EURCHF, GBPEUR etc. |
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