Buying a Stock Future: The Procedure and Risks

The Futures Market isn't alien to the trading world as it is the point where an exchange takes place between buyers and sellers for futures contracts. As one party agrees to buy at a later date and a particular price, the other party should be able to provide when that time comes. Unfortunately, not everyone knows exactly how buying a stock future works – it is a simple yet careful process. As a matter of fact, there are risks involved, which is why you cannot afford to make the wrong move. 

How to Trade Stock Futures?

Futures trading has been all about commodities, but there is also a place for stocks, bonds, and cryptocurrencies. It mostly involves trading the futures of ETF shares and individual companies for stocks. And the reason why some people trade stock futures is that there is a potential to make a good amount of money from investing a small amount. More so, there is leverage much better than being a securities owner. 

If you want to trade stock futures, you will need to do the following: 

Open a Dermat account or signup with a broker

A good broker will be interested in certain things such as experience, income, and net worth, to help achieve trading goals. Now, depending on the broker you are working with, you may be provided with several resources, including charts and quotes, to help improve your experience. Most times, you will be advised to start with a paper or virtual trading account so that you can practice with virtual money before the real trade begins. 

Learn how to use a future value calculator

While you open a stock future trading account, you should also learn how to use a future value calculator. This calculator helps predict the value of stocks (or stock futures) after a period of time, i.e., at the expected returns date. It also helps investors make good financial decisions and work in favor of company goals. 

Start Trading Safe

You can start trading once your account is ready and you've used the future value calculator to determine the expected returns from trading stock futures. 

How to Use a Future Value Calculator? 

A Future Value Calculator works as a simulator to determine the value of futures. It involves using formulas. However, these formulas are dependent on the interest rate, i.e., simple and compound interest. 

For the simple interest, the parameters consist of the stocks' current value, interest rate, and the time between the present and the future.

FV = (P x n x r) + P

Where: 

P – Present initial investment value

N – Number of Years

R – Interest rate

For instance, for compound interest or tenure investments, the formula is: FV = PV (1 + r/n)t/n

Where:

PV is the initial value 

R is the interest rate 

T is the investment tenure

N is the frequency of compounding per year. 

What Can a Future Value Calculator Do For a Trader?

A Future Value Calculator may look like doing maths, but it is actually more than that. There are benefits, especially to a stock futures trader. They include: 

• This calculator can help a trader accurately determine investment value in simple interest or compound interest mode. In short, the expected future returns are often precise because certain parameters are considered. 
• It helps a trader make quick decisions should in case the result changes. That means you will have a better idea of what to do to the deposit amount, investment frequency, and other parameters to achieve the desired result at another set time. 
• In the same vein, this calculator can help a trader make meaningful comparisons in funds and invest when appropriate with considerations to budget. 
• A future value calculator also makes it easy to choose high returns investments, even during inflation. 
• Lastly, this calculator is a tool that can be used to create value charts for stock futures. 

The Risks of Trading Stock Futures

There are potential risks with trading stock futures, even with a future value calculator. They are: 

1. Leverage:Stock futures do not consider leverage, making it possible to incur losses when trading goes wrong. 
2. Interest rate: An investment value may change if the interest rate increases during an investment period. 
3. Liquidity and Settlement/Delivery Risk: These are also potential trading threats, sometimes influenced by a trader's actions. 

Conclusion

If you've always wanted to know how to trade stock futures, there you have it! And it would be best if you always remembered that while a future value calculator is important and accurate, there are also risks involved when you trade.