Hence, it is not for individuals with all the money in the world to buy say Microsoft or Yahoo stocks, although some might dabble into it for fun or to test their predictive abilities with stock movements.
Three key players are likely to get involved in futures. These are the commodity owner or producer, the buyer of such produce, and the speculator or the one whose job is to predict the future. The last word is a good way of remembering what is being dealt with here. Indeed, all players are looking at the future, not the past or the present. Option or options, the second operant word is another clue to the type of trading involved. Accordingly, when executing a trade of such nature, the individual is not buying the stock or commodity. He or she is merely exercising an option, which becomes an obligation and a financial one if the prediction proves itself false.
Conversely, because this is all the individual gets out of the deal, he or she only needs to pay for the premium or the option itself. This certainly makes the trade more affordable. For example, if a Microsoft stock is worth $40, the option could cost say, $10. Before going any further, it is important to stress that the situation being presently described belongs to the speculator, not the commodity owner, or the buyer. The speculator has no interest in buying the actual goods being traded, which can be corn, rice, or gold. In fact, it could be anything.
Future option trading makes speculation enjoyable, profitable, and dangerous. Because of it, start up investing is possible, although it is not investment per se. Students, superficial entrepreneurs, anyone with low funds but wants to test the trading floor waters are welcome. However, tread the path with caution and make only small bets, the ones, which one can afford to lose. Bear in mind, futures have to do with short-term trades, which call for watching stock movements like a hawk. Remember that the speculator is on the pilot or hot seat, betting his or her money on a particular movement like for example, Yahoo stocks are going up at a certain specific amount by a certain date.
It is like playing Monopoly, but only with real money, a strike price for a stock or commodity, and above all, an expiration date like for a prescription drug. If the price does not materialize, money goes down the drain by the expiry date. Warning: There is no reset or rewind button. For sure, the stockbroker will come to collect, come hell or high water. Future option trading shares some qualities with the plot of the movie, “back to the future”. This is because what the individual decides on in the present will affect the future, which is some thirty days after, give, or take.