If you are looking to invest in stock futures you need to know the basics and the forces which govern the price movements in order to achieve the desired results. Research and analysis along with the assessment of your personal requirements can get you the best results.
A stock future is a type of contract in which selling and purchasing of stocks on any future date is mentioned. Two parties are involved in this stock future and those which are buyer who are called “long” and the one who sell his stocks are called “seller”. The motive of buying and selling of these stocks is to gain profit. The seller decides to sell their stocks expecting a decrease in its price in the future and buyer purchase stocks expecting there will be an increase in stock price in the future.
A stock future is the way to save you from sudden fluctuations in the stock market. Understanding stock future is not easy, to understand it better take an example that you are an owner of a company which makes popcorns. For making your popcorns first you need to purchase corns. Every single day there are fluctuations in corn price, and you want them at low prices so that you can make more profit once you sell your finished stock. But day by day you start realizing that the price of corns are increasing day by day and there is much different than it was earlier. So to avoid these high prices you make a future contract with farmer for taking corn at a specific price till specified future date.
You may not get on very low price as farmer is also doing business to earn profit but you may avoid any future rise in prices which you have to pay ahead. This thing can save you from drastic change in high price of corns.
Like above example, stock future work is almost same. In this there are two parties who come up with a contract for the purchase and sale of stocks at a specific price on a set future date.
So, when it comes to investments in the future contracts it more or less requires an extensive study on the part of the investors. Investing in stocks proper research can land you in trouble. There are a lot of people who do not have sufficient time and the required knowledge to select the funds and decide on the investments, such people often take on the services of the agencies which invest their funds and take care of their investments. A selection of these agencies and the service providers becomes really important.
There is a lot of companies which deal into the future contracts. Selecting the one which can best suit your circumstances requires you to know the kind of experience these companies have. The more experienced they are chances are that they can handle your case better. This is because they might have dealt with a number of customers and must have come across several issues which they might have solved. Also, the kind of performance and the selection of stocks they have offered to different customers matters a lot.
Loans and Future contracts
There are a lot of people who take personal loans for people with bad credit to invest in the futures. This can offer great profits if everything goes as per the plan but looking at the markets and the way they behave this can be a risky affair. Also, any loan comes with an interest rate on it which is to be paid by the borrowers and hence the overall money actually borrowed comes out to be a larger amount. You need to make a better assessment of the stocks to really land up with the desired profits.
Futures Contracts 101:
When you come up with contract of stock futures then it doesn’t mean that you are coming in contact to buy or sell stock certificates. You are coming up with a contract of buying and selling of stock certificate on a future date. So this contract doesn’t give you right to get dividends or join the stakeholder meetings. The way of earning money in stocks is when the price of your stocks goes up. And with stock futures, you make money in both cases whether your stocks price increases or decreases.
Stock futures have two basic positions: 1) long 2) short. According to a long position, you can buy the stock when the contract expires. And according to short position, you can sell the stock when the contract expires. In short if you think that the stocks which you are holding right now will get increase in their prices in next two months then you should go for long and if you think there will be a decrease in the price of your stock in the next two months then you should go for short.
Let make this long and short positions more clear with an example. It’s July and you are entering into a stock futures contract with Infosys to purchase their 100 shares at the rate of $50 on October 1st. The contract price of purchasing stocks is $5000. But before October the price of stock rises then you can sell your contract to earn profit. For example the price of stocks of Infosys rises from $50 to $55 on august 1st, and then if you sell your 100 shares then you will get 5500$ and you’ll make a profit of 500$.
And in case of a short position, the actual contract is by selling 100 shares at the rate of 50$, but later the rate of Infosys stocks falls from $2 and is now about 48$ on 1st August. And in case of short position it is better to purchase the contract back before delivering the shares. For example if you purchase the contract back then you have to pay only 4800$ for the stocks which is for 5000$. You have made 200$ profit by making a prediction that the cost of the stock will fall in future.
Stock future investment strategies:
Stock future is a risky market, so making single stock future investment is not always profitable. There are possibilities of facing loss in such investments. It is better to make several future investments so that at the end you come up with profit rather than only loss.
Hedging is the most effective strategy used for stock futures. Hedging is to protect from the adverse market fluctuations which is taking the total opposite position of your investment.
After hedge there is also another method of making stock futures known as the spread. The spread is when you enter into both contract of long and short position. In this contract you agree to sell a contract on a particular date as well as purchase the contract on the same date. By this method you make dual profit of short and long term gains. Inter market spread is done so that if in case you face loss with one investment then you make profit from another investment.
Stock future investment is the most beneficial and safe way of investing money to gain profit. It is a short and secure way of making good money from share market. With the help of stock futures you can fix the value of your stock even if the market price of your stock decreases.