Futures Trading and other Systems
In futures trading, many traders are using the system called futures spread trading. This involves trading one futures contract against another contract. Spread trades are subject to less instability than outright futures trading. Because of the reduced risk of spread trading reduced margin rates are provided. Spread trading normally makes use of seasonal analysis. To provide a seasonal method for determining supply and demand, historical prices of commodities are tracked and charted. Seasonal analysis proves to be correct most of the time despite the fact that past performance is not always indicative of future results. The perfect example for seasonal trade is the heating oil, wherein the demands are obviously increasing during winter months. When trading agricultural commodities, long term traders might use weather reports and conditions. Another type of futures trading system is called automated trading and normally includes algorithmic trading. Very large traders such as investment banks and hedge funds are frequently using high speed program trading wherein computer programs might enter thousands of trades profiting pennies per trade. This type of trading adds liquidity to the market. Futures trading systems can be purchased, rented, or supplied by futures brokers. Another form of future trading system that is highly recommended is the paper trading because the best trading system is the one researched and developed by the individual investor. There is no known replacement for hands on research, testing and development of a trading system. As an investor, it is highly recommended to always research the track record of a system before investing any capital.