Online Futures Trading

Often touted as one of the best businesses to run from home, online futures trading has exploded in popularity since the boom in online trading nearly two decades ago. What attracts investors to this growing marketplace is actually very simple: unlimited profit potential.

The boom in futures
In the early 1990s, the world’s financial markets were merged. Money from the United States poured into investment products around the world, and money from the rest of the world poured into the United States. But while investors were buying stocks, bonds, government debt, and even exotic derivatives, few were aware that the largest leveraged market in physical goods was right in front of them: the futures market.

The futures market has a very storied history, but much of this story begins with the advent of online trading. With the futures markets now extending into the home through the computer, traders were eager to start in online futures trading, and start they did. Now arguably one of the largest markets around the world, the online futures trading market has reduced borders in international commerce, and helped stabilize prices around the world.

Worldwide market
Because one bushel of corn in the United States is just the same as one bushel of corn in South American which is just the same as one bushel of corn in Asia, the people behind the exchanges thought that world commerce would be best aligned if it participated in one central market. While the centralized market system they imagined has not yet come to fruition, the futures markets in New York, Chicago, London, and Tokyo are very much interrelated.

By connecting these marketplaces, the price of every good from metals, to coffee beans, and even the price of cattle, is set on international exchanges. Allowing the prices to float freely around the world means that in a world where many goods may cross numerous international borders, that prices would be relatively stable no matter what region you called home.

Today, the fastest growing segment of the futures market is in the speculative corner. Speculators–those who trade futures to produce a paper profit, not to purchase physical goods—have helped increase liquidity while improving the marketplace for the “tangible” buyers and sellers. Since speculators rarely take delivery, their volume allows for other net buyers and sellers to execute trades with rapid speed, and to do so without adversely affecting the markets.

The role of the speculator
While many farms, mining companies, and other commodity producers are sure to enter the futures trading business in the next year, the most growth will be seen in those who want to profit on changes in the prices of commodities. One particularly growth-heavy sector is in energy, where investors buy and sell 5,000 barrels of oil at a time to profit off miniscule changes in the price of a future barrel of oil.

The role of the speculator is very simple: their job is to buy when they believe the current price to be too low to be sustainable, and sell when the price is too high to be sustainable. By acting as an additional source of market knowledge, a trader who sells crude today may signal to the markets that he or she believes crude is too expensive. In selling his or her crude oil, the supply to demand ratio tips slightly, and the prices drop to reflect the change in supply.

Likewise, futures traders act as a buffer between central banks and international prices. When rates drop to record lows, traders leverage up, purchasing commodities based on their knowledge that prices will necessarily rise.

While the speculator is often the target of unearned criticism, the role of the futures trader will only grow in keeping markets efficient. And in keeping the markets efficient, individual traders will only grow wealthier.

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