Have you ever heard of US market futures, or futures in general? These are basically contracts in which one party agrees to buy and another party agrees to sell something at a given future date in time at a preset price. You can either use futures to hedge against risk or to speculate on whether prices for a certain good will rise or fall.
Consider this example: Let’s say you have a large stock portfolio. However, you believe there is a chance that markets might decline within the next couple of months. What you can do is short US market futures in order to hedge against stock price drops. If market prices for your stocks do decline your losses will be offset by the futures you short sold.
You can also use these investment vehicles to speculate. Take this example: You happen to believe that the Dow Jones Industrial Average is going to post huge gains in the future. So with this belief, you could invest in DJIA futures and potentially reap the profits off of the DJIA’s gains. Besides the DJIA, you can also invest in the S&P, NASDAQ, and other indices.
In fact, the most popular type of index future is probably the S&P 500 futures. These futures are very widely traded. Investors who are looking to speculate on market movements use these futures. Investors who are trying to hedge against risks in their stock portfolios also use them.
Many people prefer investing in market futures and other types of index linked financial instruments because they prefer examining market trends rather than individual companies. Whether or not it’s actually easier to predict market movements rather than the movements of individual companies is certainly up to debate. It is generally best for individual investors to figure out what they’re most comfortable with.
Investing in futures, as with all types of investments, does involve some risks so keep that in mind. Also, make sure you take your time to educate yourself when investing in futures. One great resource is Bloomberg futures. Another great option is Investopedia. Even Wikipedia can be useful for investors, so make sure you consider them all!
When It Comes To Futures There Are Many Options
Besides US market futures, there are many other stock market futures. For one, there are many markets and indices across the world. While Wall Street draws the most attention, there are other great options. You can invest in the Far East with the Japanese Nikkei 225 or Hong Kong Hang Seng (among many other options). Or you can invest in European markets via the German DAX, French CAC 40 or one of the many other European indices.
Futures that are tied to commodity prices are also very popular. For example, many people who trade in energy prefer to do so through the use of futures tied to oil, natural gas, and other things. Some people prefer commodities to stocks because they understand and are more familiar with what impacts the prices of said commodities.
In fact, you can invest in just about any commodity with the use of futures. Let’s say you’re a grain farmer and you know a heck of a lot about grains and understand what will impact grain prices. If that’s the case, you could invest in grain futures and use your knowledge to make sound investments.
The same could be true of an oil engineer, or a gold miner, or anyone else who has a specialized and focused set of knowledge. If there is any type of commodity you know a lot about, you should consider futures trading for said commodity.
So whether you’re interested in market futures or commodity futures make sure you give these financial instruments a close look. Futures offer great investment opportunities. They will allow you to diversify your portfolio to include things besides the traditional stocks and bonds.