Futures Trading: Is it for You?
What is a Futures Contract, according to Wikipedia? What is a Futures Contract? A Futures Contract refers to a legally-binding agreement that specifies quantities or financial instruments will be purchased at a specific price and delivered at a future Quotex trading platform.
Contract is the key word. First, there is a big difference between the Futures Market, and say the Stock Market. The Futures Market deals in contracts instead of shares. It is not a stock (or other piece of the company) that you are buying or selling. Futures Contracts are agreements between investors that specify a quantity or type of financial or commodity instrument. For example, tons of wheat or gallons or gas.
Commodities are easy to understand. For example, an airline agrees to buy 100,000 gallons at current market prices for its planes, but doesn’t take delivery for a while.
Southwest Airlines was able to make money at $140 per barrel of fuel, while other airlines were unable to do so. When oil prices were lower, they had already negotiated Futures Contracts. They waited until 2007/2008 to receive the oil. They will buy Futures Contracts when oil prices are low again for delivery in 2011/2012.
You say that it’s fine, but this is not actually using a system of trading with strategies. This is negotiating.
Every Futures Contract carries a certain amount of risk. Futures Contracts are a way to leverage the risk of an asset against its value.
Southwest assumed risk. Southwest paid too much if the crude price fell below what they agreed to pay. They reduced their risk at the same time because they believed that oil prices would rise above the contract price. Leverage was profitable in their case.
Look at the oil firms. The oil companies reduced their risk by believing that crude oil prices will fall below the price of contract they had negotiated with Southwest. The price of crude oil was higher than what they had agreed upon, and so the risk increased. Their leverage in this instance was less than it could have been.