If you’re new to the world of futures trading, there’s a lot to learn. In this article, we’ll give you a crash course on everything you need to know about futures trading in Canada. We’ll cover what futures contracts are, how they work, and what you need to do to get started. By the end of this article, you should have a good understanding of the basics of futures trading.
How do Futures Contracts Work?
Futures contracts are bought and sold on a futures exchange. A futures exchange is a marketplace where traders can buy and sell futures contracts. The price of a futures contract is determined by the supply and demand for the underlying asset. When the demand for an asset is high, the price of the futures contract will increase. Similarly, when the demand for an asset is low, the price of the contract will decrease.
Futures exchanges use something called margin to allow traders to buy and sell contracts without having to pay the full price upfront. Margin is essentially a good faith deposit that serves as collateral for the contract. For example, let’s say you wanted to buy a corn futures contract at $3 per bushel. With margin, you would only have to pay a fraction of that amount upfront, with the rest being due at some point in the future.
The amount of margin required varies depending on the exchange and the asset being traded. For example, commodities such as gold typically have higher margin requirements than agricultural commodities such as corn or wheat. This is because gold is more volatile than agricultural commodities, which means there is a greater chance for losses.
What You Need to Start Trading Futures
If you want to start trading futures, there are a few things you need to do first. First, you need to open up an account with a broker who offers access to a futures exchange. Not all brokers offer access to all exchanges, so it’s important to choose one that offers access to the exchanges where you want to trade.
Once you’ve opened up an account with a broker, you’ll need to fund it with enough money to meet the initial margin requirements for your trades. These requirements vary depending on the broker and exchange, but they typically range from 5-20% of the total value of your trade. For example, if you wanted to buy a corn futures contract worth $10 per bushel, you would need $500-$2,000 in your account depending on your broker’s requirements.
Finally, you’ll need to choose what software platform you want to use for trading. Most brokers offer their own proprietary software platforms that allow customers to place orders and track their positions easily. There are also third-party software platforms available that can be used for trading if your broker doesn’t offer one or if you prefer another option.
Futures trading can be a great way to diversify your investment portfolio or speculate on the price movements of different assets. However, it’s important to understand how futures contracts work before getting started. This article has provided a brief introduction to futues trading in Canada; however, there’s still much more to learn before diving in headfirst!