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What is a Futures Contract?
A futures contract is a legal agreement to buy or sell a specific commodity, asset, or security at a predetermined price at a specified time in the future. These contracts are standardized for quality and quantity to facilitate trading on a futures exchange. Futures contracts are primarily used for two purposes: hedging risk and speculation. Hedging involves protecting against potential losses from unfavorable price changes, while speculation involves attempting to profit from price changes. The buyer of a futures contract has the obligation to buy and receive the underlying asset when the contract expires, while the seller has the obligation to provide and deliver the underlying asset at the expiration date. Futures contracts are traded on exchanges and can be based on a variety of underlying assets, including physical commodities like grain or oil, financial instruments, or currencies. In the United States, futures contracts are regulated by the Commodity Futures Trading Commission (CFTC). It’s important to note that most futures contracts are settled in cash and the physical delivery of the commodity or asset is rare. This means that traders are mostly speculating on the price movement of the asset, rather than intending to own the physical asset.Why Do Users Trade Futures Contracts?
Traders prefer futures contracts for several reasons:Leverage
Futures contracts are highly leveraged investments. Traders only need to put in a margin, a fraction of the total amount, which allows them to expose themselves to a much greater value of asset than they could when buying the original asset.Short position
Traders have the ability to speculate on a decline in an asset’s value, even if they don’t possess it.Liquidity
Futures contracts are traded in large numbers every day, making them very liquid. The constant presence of buyers and sellers ensures market orders can be placed quickly.Extended Trading Hours
Many futures markets trade beyond traditional market hours. Remember, while futures contracts offer these advantages, they also come with their own risks and complexities. It’s important for traders to understand these before engaging in futures trading.What is Liquidation?
Liquidation in the context of futures trading refers to the closing of a position. If a margin call is not met, the broker may liquidate the trader’s positions to cover the margin requirement. In extreme cases, the account itself may be liquidated, with all positions closed and assets sold off.What is PnL?
PnL stands for Profit and Loss. It’s a measure of how much profit or loss is made from trading activities. It’s calculated as the difference between the entry price and the exit price of a trade, multiplied by the number of units traded.How to Trade Futures Contracts on BITHERMES
Bithermes is a popular platform for futures trading. Here’s a step-by-step guide on how to start futures trading on Bithermes:- Create an account: Sign up on the Bithermes website.
- Deposit funds: Transfer the funds you wish to trade with into your Bithermes account.
- Choose your contract: Select the futures contract you want to trade.
- Start trading: You can now start futures trading on Bithermes.
