There are basically two fundamental positions on stock futures: long and short. The long position expects the value of the underlying stock to rise over a period of time and therefore invest early; and the short position expects the value of the underlying stock to fall over a period of time and therefore invest later. Of course, the ultimate risk to your account is the amount you invested; and if you believe that the value of the stock is going to drop in a month, then you need to go short. However, this article is not about trading in those futures yourself.
You need to educate yourself first if you’re going to start investing in the stock futures market. There are many educational resources available online that can teach you how to invest properly in the futures markets. In particular, I recommend Dow Jones Industrial Average futures investing software which you can find out more about at my website. Here are some suggestions to help you decide where to put your money:
If you’re like me and use a broker to facilitate your stock futures transactions, your margin requirements will vary depending on the broker. Usually a broker will require you to have a minimum cash balance in your account. Most brokers will also require that you either have a margin account or have collateral sufficient enough to cover your margin requirement. You don’t want to put your entire account on the line every time you make a margin call; and you don’t want to lose your entire account because of a margin call. As a general rule, I always recommend that you only open a margin account with a broker who has a solid reputation and good track record.
Some investors like the Nasdaq 100 index. For those investors, it makes a lot of sense to purchase stock futures directly through the Nasdaq 100 rather than through a broker. The Nasdaq 100 offers a very low cost opportunity to purchase large blocks of shares at a low price.
If you prefer to manage risk by owning a portfolio of stock futures contracts instead of shares, then I would recommend that you pursue a long position. Many investors think that they can become rich by purchasing individual stock futures contracts, but this is not really how the stock market works. One of the biggest reasons that investors become poor at managing their portfolios is because they invest without a long-term investment strategy. Once an investor decides that he wants to try to make money trading futures, he should first learn how to invest appropriately.
If you’re just getting started with stock futures, then you’ll likely be using a short position strategy. This means that you’ll be buying stock futures with the goal of selling them short once the market begins to move against you. If you’re not familiar with how to buy long position trades, then you need to get some training. Most brokers will offer training workshops and sessions to help new investors learn the ropes.
However, even if you already have some experience in stock futures investing, it’s still possible to make money even if you don’t take advantage of training or a reputable broker. You can do so with the help of leverage, which is another word for extra money on your account. By making a small amount of additional investment money on your account each month, you can significantly increase your potential return.
When you are going long on stock futures trades, you are going to trade 2 different contracts. One contract will pay you for the actual price that the market represents at that time. The other contract is known as an intermarket spread. An intermarket spread is simply the difference between the actual market price and the bid or ask price being offered by an investor on the aftermarket. By placing a bet on the wrong side of the spread, you risk losing all of your investment.