How Online Future Trading Works

By: Lesley Lyon

A contract, which is usually an agreement between two parties to buy and sell an asset at a specified time at a specified price, is known as future trading. Future trading is generally carried out on a futures exchange. A futures contract has a standardized date and month of delivery, price and quantity.

Futures are different from forwards in the sense that margin and delivery requirements are different. The futures exchange gives certain standard features for a contract to facilitate liquidity in futures trading. A futures contract may be set before maturity by having an equal and opposite transaction, which is the way majority of the transactions are held.

Expiration date is the date specified in the options or futures contract. The price at which the futures contract trades in the futures market is the futures price and the expiration date is usually the last Thursday of the respective month. Futures contractors are available in three series, having one month, two months and three months expiry cycles. A new contract of three-month expiry is introduced for trading on the Friday following the last Thursday.

Since many types of players are involved in trading futures, it helps in the process of proper price discovery. Apart from this, futures contracts also help in hedging of price risk commodity. Futures contracts are highly useful for the producer due to the fact that he gets an idea of the price that may prevail, which in turn helps him quote a realistic price.

On line future trading assists people to trade and exchange on the futures market and online futures trading allows the traders to scan the most recent exchange offers. The trader can send an order straight away into the exchange trading engine and also get the feed back or confirmation of the contracts instantaneously through on line futures trading.
In this way the trader is able to view a live market on the screen and interact with it.

On line future trading has a lot of advantages. The prices of the derivatives traded on the futures market are updated immediately and in real time through online future trading. Due to this interactivity the individual trader gets transparency of the market and good trade speed .It is possible to access the futures market from any computer with an Internet connection through online futures trading and trade on the important electronic futures exchange, around the globe.

To ensure smooth functioning of the futures trading done at the exchange there are certain inherent systems like the futures rolling settlement. Under the futures rolling system, all the trades that are unfinished at the end of the day are settled. The buyer has to necessarily make payments for the securities bought by him and the seller has to deliver the securities sold by him.
Another system that is in vogue is the weekly settlement system cycle wherein the transactions done during the week are squared off on the last day of the cycle, which means that a trader gets a longer time to speculate. When it comes to the question of trading futures for a living, trading futures is certainly a better choice than investing in equities.

Trading
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 
 • 

» More on Trading