Opening an online demat account paves the way for not only trading in the stock market but also derivatives, such as online futures trading. While for beginners, futures may look a lot like the usual stocks they trade in, they are far more complex.
These can act as a hedge or help you earn money if done right. For that to happen, it is imperative for you to understand their work. This article discusses how a trader can make money via online futures trading.
What are Futures?
Futures are derivatives, i.e., not stock certificates but financial instruments that get their worth from the underlying assets and time factor. Here, speculative players and hedgers meet to predict the underlying asset’s price.
Futures are not limited to shares only but expand to different types, such as:
- Commodities – The most popular type of futures, these represent an agreement to buy or sell a fixed amount of a particular commodity at a pre-decided price and time in the future.
- Indexes – There are futures for indexes, too (Nifty 50, Bank Nifty, S&P 500, and more). These are often used as a hedge against the current positions in the stock market.
- Currencies – Another very prevalent futures type, these are usually used to hedge against the movement of foreign exchange rates or to make money.
- Interest rates – These futures are an effective way for traders to hedge their open loan exposure and prevent rate changes from affecting their financial position.
How Can You Make Money via Futures?
While futures are a great way to hedge yourself from an unwanted movement, you can also use a futures trading app to make money. Here’s how:
Understand the mechanism of the futures thoroughly
As a plethora of underlying factors can affect futures’ performance, it is vital that you know the risks involved and how they impact futures’ pricing before getting started.
Determine your risk appetite
Misunderstanding the appetite for risk is one of the primary reasons why a majority of people lose money in the stock or derivatives market. So, before taking a position, make sure you know how much money you can afford to lose.
Determine your strategy for trading
Like in the stock market, futures are traded with the help of pre-decided techniques. Choose which one you want to follow and understand how to implement it well to ensure you make the most of the available capital.
Do not shy away from stopping losses
Many people tend to take a stance, and when the market goes the opposite way, they often keep waiting with a glimmer of hope, which often leads to losing more money. Instead, a successful futures trader already has a stop loss in play to minimize losses.
Structure the trade well
Not only the prices of the underlying assets but look for dividends and understand other factors that can impact the futures prices.
Use a Futures Trading App to Make Money
Now that you know the basics of online futures trading and how to make money, you need to use the learning to your benefit and make money by trading in them. For this, you will need reliable futures trading software that can help your cause and work to your liking.
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Disclaimer: This blog is not to be construed as investment advice. Trading and investing in the securities market carries risk. Please do your own due diligence or consult a trained financial professional before investing.