Learning To Trade Futures By Jordan Schleider Of NQ Trader
Hi, I am Jordan Schleider founder and head trader at NQ Trader. I have over 20 years of trading experience and I offer insight to my skills and systems at NQ Trader futures trading school. NQ Trader is a small boutique futures trading school that specializes in price action futures trading and offers live futures trading classes daily for students who are looking to learn to trade.
At NQ Trader, we focus on many different areas of futures trading. One of the first areas to be covered is the basic concept of trading futures. This will cover some areas like, what are futures. It is important to understand that while we use the term trading futures in a similar context to trading stocks, we never actually own futures.
How it works is something like special ordering a new car from the dealership that will be custom built for you by the factory. You would stop into the dealership and place an order for the car. Next, you would place a deposit on the car and sign a contract to buy the car somewhere in the FUTURE when the car is completed by the factory. The dealership would give you a delivery date for the car. Notice the bold words, deposit, future, and contract. These are the key points in understanding what is really happening in futures trading.
When we trade futures, we never really buy or sell any physical items. We just agree to buy or sell something to someone in the future. We do this by signing a contract with another party to complete a sale in the future at a specific price. We are also required to put up a small deposit to guarantee we fulfill the contract. This deposit is called a margin in futures trading.
Now here is where it gets interesting. Let's say you order this car from the dealership and you are waiting for the car to get built. While you are sitting home, watching a little TV you see a special on cars and it talks about the specific car you ordered and as it turns out this is the last model year they are going to make of this particular car. You also hear that many people still want one of these cars but the factory has decided to limit production anyway. The next thing you hear is that there are lines at the dealers waiting to buy the last few cars.
So while all this is going on you get the idea to make a little money from your car that you ordered. Maybe you list it on eBay for sale. But here is the catch, you don’t own it yet, you just have the contract with a fixed price. So, while your car for sale ad is sitting up on eBay people are bidding on it, what are you going to do?
When you signed the contract with the dealer, you're agreed upon price was $35,000 and people have bid the price up on your action to over $50,000. Well somewhere in the fine print of all futures contract, there is something that says you may assign this contract to someone else at any time and at any price.
When your action ends, you hand your contract over to the winning bidder and sign off on it for a grand total of $15,000, plus the refund of the deposit you put down. That is all there is to understanding futures trading.
Thanks for taking the time to read my article on futures trading basics. I am Jordan Schleider founder and head trader at NQ Trader.