When prices fluctuate, it affects every area of the economy, and it is a desire to be shielded from any negative fallout that often drives investors to add futures trading to their portfolios. The perfect tool to reduce volatility for both businesses and individuals alike, such contracts can serve an invaluable purpose when it comes to safeguarding your market successes.
However, futures trading should be approached in the same way as any other type of trading, and many investors fail to appreciate this. In order to properly understand what drives these investment instruments, and thus be able to use them to your best advantage, you therefore need a grasp of the various factors that affect them.
To help you out, here are three that you need to know…
#1: General Factors
Like any sort of investment, general economic conditions will affect the value of assets. Where a nation is experiencing a financial boom, for example, price rises are likely; where it is not, decreases are more probable.
The wider factors that impact these must also be taken into account, and this means that political uncertainty, social instability, and commercial or industrial prospects should all be evaluated when choosing your futures investments.
#2: Commodity Factors
One of the largest and most popular segments of the futures markets is commodities, and this means that any factors affecting this area will also need to be considered. Thus, events or happenings which influence the supply or cost of production of a particular commodity will have the ability to impact its value on the futures markets.
In the case of agricultural futures, for example, this will mean looking at any recent unfavourable weather patterns, such as droughts in particular countries or floods in certain regions.
In addition, export and import policies or restrictions might also affect prices, so the impact of events such as Brexit should be thoroughly assessed.
#3: Currency Factors
Currency futures are as volatile as the currency markets they’re based on, as experts like FxPro can attest. Influenced by a huge range of factors, from central bank decisions to government policies regarding taxation, conflict, and even political upheaval, trading these contracts requires an in-depth understanding of the foreign exchange and all of its intricacies.
The factors discussed above offer only an initial insight into all of those that you will need to understand, and this means that futures trading is not something that should be entered into lightly. However, provided that you’re willing to put the effort into developing the skills and knowledge necessary to succeed in such a specialist area, the opportunities are there for those talented enough to take them.Copyright 2015 Original content authorized only to appear on Money Beagle. Please subscribe via RSS, follow me on Twitter, Facebook, or receive e-mail updates. Thank you for reading.