Futures trading is a financial derivative that uses margin for leveraged trading. In the stock market, futures trading is based on stock indexes and is bought and sold through standardized contracts derived from them. Investors trade in the futures market by predicting the future trend of the stock index, with a view to buying or selling the stock index at a certain time in the future at a predetermined price.
Features
1. Standardized Contract: Futures contracts are highly standardized. In addition to price, other terms of the contract are predetermined, and investors do not need to negotiate the specific terms of the transaction.
2. On-exchange trading: All futures transactions are conducted through centralized bidding within the exchange, ensuring the transparency and fairness of transactions.
3. Margin Trading: Investors only need to pay a certain percentage of the contract value as margin to conduct transactions and achieve leveraged trading.
4. Two-way trading: Investors can buy or sell futures contracts, either buying first and then selling, or selling first and then buying.
5. Hedge Closing: Traders can end the transaction by closing the position. Most futures transactions close the contract in a hedging manner before expiration.
6. Liability-free settlement on the same day: After the daily transaction, the investor’s profit and loss, trading margin, handling fees, etc. are calculated and funds are transferred.
Risks and Opportunities
Futures trading risks include:
1. Price Risk: Due to market fluctuations, investors’ expectations may not match the actual price trend.
2. Liquidity Risk: Poor market liquidity may make it difficult to complete transactions quickly.
3. Leverage Risk: Leverage magnifies investors’ profits and losses.
4. Delivery Risk: Delivery must be carried out after the contract expires, which increases the risk of investors.
At the same time, there are also opportunities in futures trading, such as:
1. Hedging: Investors can hedge through futures trading to avoid risks in the spot market.
2. Price Discovery: The futures market helps discover reasonable prices for stock indices.
3. Asset Allocation: Institutional investors can use futures for efficient and flexible asset allocation.
Conclusion
To sum up, futures trading in the stock market is a highly leveraged and complex investment method that has both potentially high returns and high risks. Before participating in futures trading, investors need to fully understand its characteristics and risks, formulate appropriate risk management strategies, and have certain market insights and risk tolerance.
FAQs
Q1: What is the difference between futures trading and stock trading?
A1: The main differences between futures trading and stock trading are:
1. Trading Object: The object of futures trading is futures contracts, while the object of stock trading is stocks.
2. Trading Hours: Stock trading is immediate, while futures trading is usually conducted at a time in the future at a predetermined price.
3. Trading Mechanism: Futures trading features margin trading, two-way trading and hedge closing, while stock trading is typically fully paid and short selling is not allowed.
Q2: What are the main risks of futures trading?
A2: The main risks of futures trading include:
1. Price Rise: Market price fluctuations may cause investors’ expectations to be inconsistent with actual trends.
2. Leverage Risk: Because investors can control a large number of contracts with a small amount of money, potential profits and losses are magnified.
3. Liquidity Risk: Poor market liquidity may make it difficult for transactions to be completed quickly.
4. Delivery Risk: Delivery must be carried out after the contract expires, which increases the risk of investors.
Q3: How to conduct futures trading?
A3: Futures trading usually requires the following steps:
1. Open an account: Investors need to open an account with a futures brokerage company and sign relevant agreements.
2. Deposit margin: Investors need to deposit a certain proportion of margin according to the contract requirements.
3. Issue a trading order: Investors place trading orders to buy or sell futures contracts through a brokerage company.
4. Manage trading: Investors need to continue to pay attention to market trends and close or adjust positions when necessary.
5. Settlement Profit and Loss: After each transaction, investors need to transfer funds based on the settlement results.
