Terms To Know Before You Take Your First Futures Trade
Before you start to take your first futures trade you need to be aware of these concepts that are involved in futures trading.
The lot size
This is the standard futures contracts where everything that is related to the futures agreements determined beforehand. Lot size is a parameter in the futures contract and this is the minimum quantity that you have to trade when you want to trade the futures contract. The lot size will differ from one asset to the other.
The value of the contract
The contract value is the quantity multiplied by the asset price. The futures contract has a predetermined lot size. Thus to calculate the contract value of the futures contract all that you have to do is to multiply the lot size with the futures price.
The moment when a transaction happens the parties who are involved in the agreement entered into a contract. For this, they have to deposit some margin. This is the token money that you would have to deposit to enter the contract. When you trade on futures this money has to be deposited with the broker. This margin amount is generally a percentage of the contract value. This is referred to as the margin amount. Margins are important in trading futures. Thus when you enter into a futures contract you will have to pay a margin amount.
Every futures contract is time bound. This means that it will expire in the near future. The expiry date is the date till which the futures account is valid. The contract will do not exist after the expiry date. When a contract expires then the exchange introduces a new contract.
These are some of the terms that you have to keep in mind before you start to trade a futures contract.
Trading the futures market
You need to understand the concepts that are related to the futures market before you start to trade in them. The real benefit of trading in the futures market is that it helps the trader to benefit financially and for this, the trader has to have a view on the assets price.
If you have some directional view on the asset price then you can benefit from it by entering futures contract. You will, however, have to deposit margin amount to the broker to trade the futures contract. You will have to sign an agreement with the other party that forces you to honor the contract.