Future Fundamental Strategies:
Futures traders try to predict what the value of an underlying index or commodity will be at some point in the future. Speculators in the futures market can use different strategies to take advantage of rising and declining prices. The most basic are known as going long, going short and spread trading.
Long and Short Trades
Trades can be entered in two different directions, depending on where traders expect the market to go.
Long trades are the classic method of buying with the intention of profiting from a rising market. Even though losses could be substantial, they are considered limited because price can only go as low as $0 if the trade moves against them.
Short trades, on the other hand, are entered with the intention of profiting from a falling market. Once price reaches their target level, they buy back the shares (buy to cover) to replace what they originally borrowed from their broker. Trading short positions is an important part of active trading because it allows them to take advantage of both rising and falling markets – but it takes extra caution.
Unlike long trades, where losses are considered limited because price can’t go below $0, short trades have the potential for unlimited losses. That’s because a short trade loses value as the market rises, and since price can theoretically continue rising indefinitely, losses can be unlimited – and catastrophic. Traders can manage this risk by always trading with a protective stop loss order– a line in the sand beyond which they won’t risk any more money. Whether they go long or short, we must have a large enough balance in their trading account to meet the initial margin requirement for the particular contract.