Futures Trading The Dangers
Futures trading the dangers: are many, varied, and often unpredictable. The basic reason for this is that futures contracts are traded in a leveraged manner. An example would be a wheat contract, which would require a margin of $750. A wheat contract is 5,000 bushels of wheat. A fifteen-cent change in price would equal the entire margin of $750. That is fine as long as the price move was in the direction you expected. If it was in the opposite, you have lost all your margin money. A move like this can happen in a single trading day.
A severe weather change or a crop report can be a significant market mover. A change in government policy can cause the market to lock at the limit and those traders on the wrong side cannot get out of their positions, as there is no one willing to take the other side of the trade. This is why the market is locked at its daily trading limit. This happened in the grain market when President Ford announced there would be no grain trading with certain countries. This news came after the market was closed and when it started trading, it locked for five days in a row. A trader on the wrong side of this move was out thousands of dollars per contract in five days. Surprises are vicious in the futures market.
Stock traders get hurt trading futures, as a buy-and-hold trading style can be a killer in futures trading. Also, most stock traders do not short stocks. Shorting the market is an every day trade in futures. Futures traders do not care which side of the market they are on. They only want it to be the correct side.
Learning the futures trading dangers can be expensive and never ending. There is never a time when a trader has seen it all.
Ken Charnley is a personal finance publisher whose website http://www.online-loans-pro.com/ is dedicated to quality information on online loans. For all your online loan needs visit and Apply for Loans Online
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