Advanced concepts of futures trading for the pros in London
Futures trading is an increasingly popular way to speculate on the movement of various financial instruments, such as commodities and currencies. Due to the complexity of these markets, professional traders in London need to understand the more advanced concepts that come with futures trading. This article will discuss advanced concepts in futures trading, from stop-loss orders to arbitrage opportunities. Understanding these concepts can help pro traders in London make better decisions when entering a trade or managing their position in the market.
Spread trading
Spread trading is a popular strategy for professional traders in London. It involves simultaneously buying and selling two contracts of the same underlying asset. It helps reduce risk, as traders can hedge their positions by taking equal but opposite positions in different markets. For example, someone might buy one futures contract of gold while also selling another futures contract of silver. Doing this allows them to profit from price movements between those two assets without exposure to too much market volatility. Additionally, spread trading can help reduce margin requirements, as traders only have to post a fraction of the total margin for each contract when compared to taking just one position.
Stop-loss orders
Another important concept for pro traders in London is stop-loss orders. A stop-loss order is an instruction given to a broker to close out a position once it has reached a specific predetermined price. It serves as a protective measure for traders, helping them to avoid more significant losses should the market move against them. It is important to remember that stop-loss orders are only sometimes guaranteed and can be subject to slippage or price gaps. Additionally, due to its nature as an instruction the trader gives, it cannot guarantee profits in positive situations either.
Arbitrage opportunities
Arbitrage opportunities are another advanced concept that pro traders in London must understand. Arbitrage is the simultaneous buying and selling of security on different markets to profit from price discrepancies between those markets. For example, if gold futures contracts trading in one exchange have a higher price than those trading in another, a trader can buy the lower-priced contracts and sell the higher-priced contracts. It would allow them to capture a profit without exposing themselves to too much risk. However, due to the complexity of arbitrage, professional traders in London need to understand how different markets work and how pricing discrepancies may arise before attempting to take advantage of these opportunities. Traders can check out Saxo Capital Markets for live quotes and available future contracts.
Leveraged trading
Leveraged trading is also a crucial advanced concept for futures traders in London. It involves taking positions with borrowed money from a broker or other source. It allows traders to increase their exposure to a market without putting up the total capital required for that trade. Leverage is very beneficial as it allows traders to take more significant positions and, thus, capture more significant profits. However, it can also be perilous, as the losses from a leveraged trade can be much more significant than those of an unleveraged trade. Therefore, professional traders must understand leverage before taking on significant levels.
Hedging
Hedging is an essential advanced concept for pro traders in London. It involves taking positions to offset losses from other trades. For example, if you are long a gold futures contract and the price starts to decline, you can hedge your position by buying a put option on the same underlying asset. It allows you to limit your exposure to any further downside risk in the market should the price continue to decline. Additionally, hedging can protect profits; if you have already made money on a trade and think that further gains are unlikely, you can buy a put option that guarantees some of those profits even if the underlying asset’s price drops.
In conclusion
The advanced concepts of futures trading for pro traders in London are vast and varied. Before venturing into the markets, professional traders must understand these concepts, from spread trading to hedging. Furthermore, it is essential to remember that leverage can be beneficial and dangerous and should be used cautiously. By understanding these concepts, professional traders in London can better arm themselves to pursue profits and limit their risk in the markets.
