For those who have never participated in online trading, futures trading refer to the practice of agreeing to purchase or sell a commodity at a future date. The practice of commodity futures trading follows a standard procedure, nothing of which varies but the price of the transaction. There can be no misunderstandings on the part of either the buyer or the seller, because all terms of the transfer are clearly defined before the process actually begins. In online trading, the cost of the futures contract is established in the electronic trading system or the trading pit of a futures exchange.

It is the Commodity Futures Trading Commission which establishes the statutory regulations and rules which must be upheld by all who exchange futures, either online or in the pit. It does not matter how the trading takes place, be it in a physical location, or from a computer at home, the same rules apply to the futures trade. These rules are meant to safeguard those involved, and cannot be circumvented.

The internet has done much to connect people and cultures throughout the world, and now trading systems have gone global through the use of the web. The trading of futures can now take place from any location on earth as long as there is an internet connection at hand. Because the market has become increasingly accessible, it has seen a rise in eager traders.

Some of the advantages to be had in trading futures online include lower commission costs, leverage, liquidity and automated trade. Those who participate in online trading have the ability to go short, those futures contracts purchased online can be sold just as easily, allowing a trader to profit from the market, no matter what shape it happens to be taking. Commission costs are generally lower online, because no human agent is required to make purchases and sales unlike what one sees in a trading pit. These contracts are relatively liquid, though the extent of a futures contract’s liquidity depends upon the unique contract itself. An automated trading function allows users to access custom written software which sends signals to either buy or sell automatically. Futures operate on margin online, allowing users to obtain a contract with only a fraction of the contract’s value available in cash.

Like anything that takes place online, there is a downside to trading commodities on the web. Is important to plan carefully around money management issues although futures can be obtained on margin, this can actually work against traders if the contract is a high risk. The nature of online trading, instant access, quick turnaround, lower commission rates means that many traders spread themselves too thin rather quickly. A trader may be too easily persuaded to trade additional commodities that they hadn’t originally planned to take on. Before a user begins trading futures, it is ideal to establish some ground rules and a detailed trading plan. In the case of online futures trading, the positives can outweigh the negatives as long as users act carefully and within the limitations they must set for themselves.

Author Bio: Stewart Wrighter recently researched futures trading for an article on the stock market. He learned that commodity futures trading can be a lucrative profession.

Category: Finances
Keywords: futures trading,commodity futures trading