The agreement between seller and buyer is how futures contract is defined. This works when the two parties agreed to sell or buy assets at a given time and price. For every future contract, it is represented by specific amount of a commodity or a security.
Whether you believe it or not, crude oil has a contract unit of a minimum 1000 barrels which at the same time is the most traded commodity futures contract wherein even futures trading brokers make most money. Every futures contract of corn on the other hand is represented by 5000 bushels or around 127 metric tons. It looks like confusing at first but as you take time to know more about futures trading in this page, you’ll get to understand it sooner or later.
Originally, future contracts were made to help farmers hedge against the changes in cost of their crops between the planting season and when it could be harvested and supplied to the market. While the producers like farmers as well as end users keep using the best futures trading system to hedge against potential risks, both traders and investors as well is going to use contracts all for the speculation purposes. They will eventually make profits by making bets on the direction where they think that asset moves. Try visiting this site if you wish to find out more information about this.
Yes it is true that the futures contracts are intended for agricultural commodities, it has adapted to change as well and now, future trading financial services have been doing contracts associated to other assets such as precious metals like gold, industrial metals like aluminum, energy in forms of oil, bonds like treasury bonds and stocks. All these contracts have a standardized agreement that trade on futures exchanges internationally.
It is pretty obvious that the more information you learn about futures commodities and contracts, the higher your chances for succeeding in trades. Of course, when you are trading online, there are many factors that ought to be considered. These are exactly what you would learn in the next paragraphs, which can be very useful when doing futures trading or using automated futures trading system.
Capital requirements – in trading futures contract, you have to make deposit to your futures trading account as initial investment. Depending on the platform you’re using, you must read how much the minimum investment should take.
Leverage – this depends mostly on futures contract that you’re trading as well as the contract value.
Liquidity – once again, liquidity relies on futures contract being traded.
Volatility – you’ll find a number of decent volatility in futures market with high leverage lets you make big profits.
To have better understanding of each factor, go to Wisdom Trading.