In the financial market, beginners always just peeping into the future trading industry have a hard time distinguishing between futures trading and futures contracts. While many might mistake them for each other, they are very different. Many terms seem to look alike and mean alike, we must get the basics straight.
Five Questions About Financial Market Trading
What Is Stock Trading?
Stock trading is an entirely different kind of trading to futures. Unlike future trading which involves buying of futures contracts comprising commodities, stock trading deals with a more professional aspect. It involves buying shares in a particular company. This means you become a shareholder by owning a piece of that company. Stock trading is a prevalent part of the finance market today.
How Many Stock Shares Can You Buy?
Buying of shares of a company is dependent on the fractions and dividends made available. This would also determine how the ROI will be distributed among shareholders.
What Is Future Trading?
This is an exchange of commodities that takes place in future markets. It is an intersection of producers and suppliers for a sale of a particular item, be it finance or otherwise, in a bid to escape market volatility. It is also an investment platform that utilizes the rise and fall based on the demand and supply chain to spin interests, profits, and high turnovers.
What Is a Futures Contract?
A futures contract is more or less an agreement between a producer, a supplier, or an investor over a commodity in the trading market. It involves a mutual understanding between both a supplier and producer on the purchase of a commodity t a future date for an agreed price and at an agreed time. Future contracts are standard agreements based on an exchange; it could either be a physical commodity like agricultural produces or a financial commodity like treasury bills and bonds. Mr. Smith needs a large supply of soybeans by fall. Mrs. Kate has soybeans that would meet the required amount and the required time. Thereafter, An exchange takes place, that is a future contract.
What Is The Future Market?
These are meeting grounds for financial players like producers, suppliers, and investors of futures. Hence, the futures market is an open market that can include a wide range of commercial bodies, including privately-owned companies and government bodies. Future markets are, therefore, standardized places where future contracts can be bought. Future contracts could include commodities, currencies, stocks, indices, and other trading materials, depending on demand and supply.
Futures are trading materials that can be secured in advance against a predicted hike in prices. Such inflation will not only lead to a scarcity in such trading materials, but a hike in price compare to its previous position. This makes trading futures a very lucrative business for investors and financial bodies
Different Types Of People In The Stock Market
This class of people invests small amounts of money in the stock market by either buying futures contracts that they predict would have a hike in price in the nearest future or buying stocks of a particular company. When this hike happens, they have a high turnover compared to the amount invested. These people study the market frequently and make decisions according to the changes in the stock market.
Buying a futures contract a month before it experiences a hike means you can sell it for more to hedgers and gain more than you invested. Buying shares of a company that grows in a few months would mean an increase in ROI. This method is prevalent in future contracts concerning currencies, commonly cryptocurrencies like bitcoin and Ecommerce companies like Amazon. As a result, the constant exchange between suppliers, producers, investors, and shareholders makes the stock market a lively, functioning, and evolving global industry.