What is futures trading? What is the difference between futures trading and options trading
Futures trading is a financial product used by many companies and individual investors for risk hedging and capital gains. However, for beginners, specialized knowledge is required, and it is also extremely difficult. In this article, I will explain futures trading in detail.
What is futures trading
Futures trading (how to read: futures trading, English: futures trading) is a transaction in which contract terms and conditions are currently determined for specific products (metals, agricultural products, energy, etc.) at some point in the future, and promise to buy and sell under those conditions in the future. In other words, it is a contract to trade the price or quantity of a product in the financial market, and it is one way to protect investors from future price fluctuation risks.
When businesses do business overseas, they require local currency. However, depending on future exchange rate fluctuations, there is a risk that you will run out of funds necessary to obtain the currency you need.
Therefore, companies participate in exchange futures trading and secure the necessary currency at an exchange rate fixed to a future date in advance. For example, now that 1 dollar is 100 yen, when 1 dollar is expected to be 110 yen in 3 months in the future, a company can participate in this futures transaction, and even if the exchange rate rises to 1 dollar = 110 yen after 3 months in the future, it is possible to secure currency with the current 1 dollar = 100 yen.
This allows companies to avoid risk due to rate fluctuations and maintain stable management. Furthermore, financial institutions and investors can also perform risk management and maximize investment returns through exchange futures trading.
Characteristics of futures trading
Hedging and speculation are possible: Futures trading is used for risk hedging and investment purposes aimed at future profits. Investors can hedge risks against future price fluctuations and invest with the aim of future profits.
High transaction volume and high liquidity
There is a due date: Futures trades have an expiration date. This is because they promise to buy or sell assets at some point in the future. When the due date is reached, the position must be dissolved, so be careful.
Requires expertise: It's difficult and risky for beginners, so investors need to learn ahead of time.
Advantages of futures trading
Leverage can be used: large trades are possible with a small amount of capital.
Transactions for various products are possible: Transactions can be carried out on a wide variety of products and financial products.
High liquidity: Due to high transaction volume and high market liquidity, orders are often executed quickly.
Exchange trading is common: Investors can trade on trusted exchanges.
Relatively low transaction fees: Compared to other investment products, transaction fees are kept relatively low.
Disadvantages of futures trading
High risk: Since leveraged transactions are carried out, the risk is also high.
Due date restrictions: If a contract reaches its due date, positions must be dissolved, making it difficult to hold for a long time.
Requires expertise: Futures trading requires expertise and is difficult for beginners.
Losses due to unexpected market movements: Losses may occur due to unexpected market movements.
Forced loss cuts due to lack of management funds: If margin cannot be added, there is a risk of forced loss cuts, so management of investment funds is important.
The difference between futures trading and options trading
futures | Options trading | |
Contract details | Products that receive the actual item on the contract date | A product that gives you the right to buy or sell at a specific price within a certain period |
Contract specifications | There are standard contract specifications | The contract period and strike price are decided in advance |
risks | There is a risk of fluctuation, and profit and loss will occur in response to price movements | There are no losses other than loss of premium points |
Trading method | Traded on an exchange | Traded on an exchange or over-the-counter |
credit risk | Since it is traded on an exchange, there is no credit risk | In the case of over-the-counter transactions, credit risk may occur |
As you can see from this table, there is a big difference between futures trading and options trading. The essential difference between the two trading methods is that futures trading is a product that assumes actual receipt of physical goods, while options trading is a product that gives the right to buy and sell at a specific price within a certain period of time. Also, there are differences in contract specifications, risks, transaction methods, and credit risk issues between the two parties. It's important for investors to understand these differences when choosing a trading method that's right for them.
How to search and view futures charts in real time
MOOMOO SECURITIESThen, futures information on the American, Japanese, and Hong Kong markets is provided free of charge. You can check a wide range of types of information in real time, such as commodity futures, energy futures, and foreign exchange (FX). Additionally, NY Dow futures prices and charts are also available for free. The Moomoo Securities app is designed to be easy to use and understand, so you can quickly grasp market trends. It's an essential item for finding investment opportunities.
Below, I'll show you how to view the Nikkei Futures 225 chart in real time on Moomoo Securities
Step 01:From the official website, go to the moomoo securities appInstall and log in.
Step 02: Select the “Futures” tab on the screen, then tap “JP” and “Stock Index”.
Note: Current market information is 20 minutes overdue. If you want to see real-time market information, click “Free Update”.
Step 03: If you enter the required information and send it, you can use real-time Japanese stock LV1 market information for free.
Also, here is an easy way to check the NY Dow Futures real-time chart
Step 01:From the official website, go to the moomoo securities appInstall and log in.
Step 02: Select the “Futures” tab on the screen, then tap “US” and “Stock Indices.”
The above is how to check real-time market price information with the moomoo securities app. As a reminder, make sure you have a good internet connection when checking real-time market information. Also, market risk always exists, so invest at your own risk and be careful about risk management.
An advantageous program for opening an account
● New account opening completed (2024/4/1-)
Transaction fees for US stocks will be free for 2 months for all those who have completed opening a Moomoo securities account.
Futures trading FAQ
What is the difference between stocks and futures trading?
stock investment | futures | |
Nature of the contract | By owning shares, corporate dividends and capital Get benefits such as lugein | Transactions that require specific products to be delivered at a future date |
Form of transaction | Through stock exchanges and securities companies, Buy and sell stocks | Through commodity exchanges, derivatives exchanges, etc. Buy and sell futures contracts |
Transaction risks | Since it is affected by corporate performance and market conditions, It is said that the risk is high | Price fluctuation risk, credit risk, etc. It is said that there are various risks |
Purpose of the transaction | Company growth, obtaining dividends, capital gains The purpose is to acquire, etc. | They often aim for profits due to rising or falling commodity prices, It may also be done for risk hedging |
What are Nikkei Futures?
“Nikkei futures” refers to futures trading on the “Nikkei Stock Average” listed on the Tokyo Mercantile Exchange (TSE), predicts what level the Nikkei Stock Average will be at some point in the future, and trades are carried out according to that prediction. To put it simply, it means that it is possible to predict price movements in stock prices and make transactions. Nikkei Futures is traded widely, from individual investors to institutional investors, and is used for risk hedging and profit pursuit while paying attention to market trends and performance information.
