Futures Trading
For years I had managed my own stock portfolio and I’d beaten the market for most of that time. I had a fairly conservative assortment of stocks bonds and commodities. Each month, my wife and I took a small percentage of our salaries and invested it in our portfolios. We did this for five years until we built what we believed was a strong portfolio. Then the market had a meltdown last year and like most people our portfolio was nearly cut in half. It was then that I decided I had to find another way to make profits in the market. That’s when a friend of mine at the gym told me about futures trading.
Because I had always invested conservatively and eschewed anything fancy, I had only a vague understanding of what futures trading actually was. My friend explained that futures trading or futures contracts were nothing more than agreements between two people who believed that a particular commodity was going to move in opposite directions. One party believed that the commodity in question was going to go down in the future, while the other believed it was going to go up. Therefore, the buyer of the futures contract would agree to purchase the commodity at a certain price believing that it would increase in value by a certain, specified date in the future. When the contract date finally came around, if the commodity had increased in price, the buyer would make a good deal of money, while the seller would lose money.
My friend explained that futures trading was attractive because you did not have to own the commodity in question. Therefore, you could buy contracts for pennies on the dollar and stand to make huge profits if you were right. “However,” he cautioned, “futures trading is very risky and should only be undertaken if you truly believe you have a good chance to forecast the value of a certain stock.”
Although I was still smarting from our loses in the market, I decided to give futures trading a try. I indentified a few stocks I believed had been oversold and that I thought would appreciate if the market rebounded, and I purchased futures contracts on them. When the contract finally came due in a few months, I made thousands because the stocks I had selected went up. Although futures trading is very risky and is certainly not for everyone, if you are confident in the future movements of a commodity you have been watching for quite some time, you can make out like a bandit.
