Trading Futures

Futures contracts are among the riskiest investments in existence. While buying futures is (in practice) as easy as buying stock — you just call your broker, place an order, and pay a very hefty commission — the potential consequences are nowhere near the same. Unlike options, when you purchase a futures contract, you become obligated to buy or sell the asset (usually a commodity) named in the contract, by a predetermined time for a set price. Futures contracts are most often written on agricultural products (like pork bellies and corn), energy products (like oil), precious metals (like silver and gold), or currencies.

Futures traders stand to make piles of money when things go their way. But the downside can be financially devastating. If you guess wrong on which way prices are heading, you could end up on the hook for much more money than you invested in the futures contract. Remember, you will be contractually obligated to fulfill the terms of the agreement. For this reason, even the most risk-loving individual investors should stay away from the futures market unless they are confident that they have a comprehensive understanding of the underlying commodity, its market, and the way its market moves.

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