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What are Futures & What are They Used For?

 Futures are contracts that track a specific index and allow an investor to trade/predict the direction a certain market is going. For example, if the S&P 500 Future is positive, then it is likely that the S&P 500 will be green in the coming trading day. This massively helps investors plan their coming positions and decide which markets are worth looking into.


What are Some Examples of Futures?

    The best examples of futures are the three major indexes (S&P 500, Dow Jones, Nasdaq) and commodities such as oil, natural gas, and gold. 

    Here is an example of how an investor might utilize futures: Let's say that Oil Futures have been positive for the past few periods of trading. An investor may recognize this and see opportunity in the oil industry. They then research into stocks that fall under the oil industry, most likely by using a screener, and finding the best that fit their trading style. Since the futures helped the investor realize how successful the oil industry does, they take positions into multiple stocks. After the oil industry continues to boom, it eventually cools down (which can be recognized by negative futures). The investor sells their positions and captures profit right before the oil industry starts to decrease.
    The investor in this case was able to capture lots of profits due to the futures signifying the booming oil market. It is important to note that the investor knew when to exit their positions, and did not hold onto them while the oil industry entered a bearish market. Using futures can greatly help investors enter and exit their positions before it is too late.

    Another way some investors like to use futures is through purchasing Sector ETFs. Going back to the previous example, an investor may buy the SPDR Oil & Gas ETF ($XOP) to try to protect themselves from risk while also buying into the sector as a whole. This is considered a safer, yet possibly less profitable, strategy than buying specific stocks in the industry. Many investors like to buy the Sector ETF and then buy larger positions of stocks they see worthy.
    Futures are also very important for short-term traders, and especially day traders. Day traders often buy Leveraged ETFs to try to capture large profits quickly. To continue with the oil example, a day trader may buy the $GUSH if the oil futures were up massively. While this is a very risky investment and almost never held onto long-term, it can lead to huge profits for some investors who are up for it.


Where Do You Find Futures?

    There are many websites that allow you to quickly and easily look at futures. The most common free ones are Yahoo! Finance and Finviz. Both are great resources but are set up a little differently. Here are how they look:

Finviz


Yahoo! Finance



    Yahoo! Finance is more of a list format with small graphs of each future on the right side. Finviz has a map and a chart which helps compare futures and decide which industry is the best for you. 




    It is important to remember that futures should not be the only factor when deciding whether or not to make an investment. Always do further research before just buying a stock because of its future. Without the proper research, it may result in huge losses to any investor.




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